What is that rent worth to prospero today

Reference no: EM131941331

Question: Farmer Prospero is 50 (assume he just turned 50) and plans to retire at 65 (at the end of his 65th year). Prospero thinks his farm will be worth $5,000/acre by the time he retires. He views his farm's earnings after that as contributing to his retirement but he also wants to keep it in the family. So, after he retires he will rent his farm to his daughter, Miranda, who has no plans to sell it. For all answers with multiple choice, choose the closest answers ignoring small rounding errors.

1. When Prospero retires, what minimum rent per acre should Prospero charge Miranda? Assume a 5% discount rate and 0% growth and that Miranda will pay the amount at the end of each year.

2. Assuming the same 5% discount rate, what is that rent worth to Prospero today?

3. From now until he turns 65, Prospero thinks he can earn $400 per acre. What is Prospero's return per acre from his own work worth to him today?

4. If Prospero wanted to sell his land to Miranda today in keeping with his motives above, what is the minimum price he should charge her?

Reference no: EM131941331

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