Elucidate what is the minimum one-time payment farmer

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Reference no: EM1346096

Suppose There are three farmers (Farmer A and Farmer B and Farmer C). The current zoning allows the land to be used for any purpose. Farmer A has chosen Pig Farming. A Pig Farm will earn $50,000 profit, every year, forever.

a. Assume the interest rate is 8% per year. Using a present value equation--
(PV = Y/(1+r)n

Illustrate what is the Pig Farm worth? You must make some investment assumptions & acirc please state your assumptions.

b. Suppose the next best use of Farmer A acirc property is residential, where it could earn $20,000 per year. Elucidate what is the minimum one-time payment Farmer A would accept to agree to restrict his land for residential use forever?

c. Why would Farmer B agree to pay 60% of this cost (from question 14-b) and Farmer C would only pay 40%?

Reference no: EM1346096

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