The value of developed land and the value of farm land

Assignment Help Financial Management

Reference no: EM132024286

3. This problem looks at problem 2 from another angle. Again, there are 100 acres in a jurisdiction, depicted below. The land can be used as subdivided residential land, or for farming. The value of land in each use is as follows.

Residential Development: 1,000 – 10D

Farming: 250

The notation D indicates developed acres and the notation F indicates farmed acres. Farm land provides environmental benefits that are homogenous across the landscape, and equal to 50 per acre that is farmed. These environmental benefits are pure public goods, meaning the benefits are not reflected in the market prices of farm or residential land.

a. Suppose the Nature Conservancy (TNC) will use conservation easements to prevent 20 acres of farm land from being developed. What is least amount of money that TNC could spend to conserve this land? Which acres would it buy? (Hint: remember that easements are valued as the difference between the value of developed land and the value of farm land.) (Hint: looking at the graph may help).

b. Suppose conservation easements are not an option and the TNC must buy the 20 acres of farmland if it wants to conserve them. What is the minimum amount that TNC would have to pay in order to buy and conserve farmland?

c. Compare your answers to part a and part b. Are conservation easements a cost-effective means for conserving land and preventing it from being developed? How might the potential to rent the land to farmers in long-term contracts help?

Reference no: EM132024286

Questions Cloud

What is present value of all of these cash flows : What is the present value of all of these cash flows if the annual interest rate is 14%?

Calculate the expected return and standard deviation : Calculate the standard deviation. Calculate the expected return.

What is the company after-tax cost of debt : What is the company's after-tax cost of debt? What is the company's cost of preferred stock? What is the company's common stock?

What is the npv of the project-what is the mirr of project : The equipment can be sold in year 4 for $250,000. What is the NPV of the project? What is the MIRR of the project?

The value of developed land and the value of farm land : Remember that easements are valued as the difference between the value of developed land and the value of farm land.

Shareholders equity can be calculated by adding the items : Shareholders' equity can be calculated by adding the items of?

What are the ethical and financial issues in this example : your CFO gives you a copy of a recent lease agreement to record. What are the ethical and financial issues in this example?

What is the difference between debt and equity : Broadly speaking what is the difference between debt and equity?

How are npv and maximizing shareholder value related : How are NPV and maximizing shareholder value related? What does the term "floatation costs" mean in the context of raising capital?

User Account

All Pages