What is the farm net present value

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Question - THE FARM PURCHASE Jan Schmidt is 45 years old and has the option of buying a farm for $500,000 or investing his money in an equity fund that has earned 14% over the past seven years. Discussion with a few investment analysts has led him to believe that this fund's performance could continue over the next 20 years.

If Jan buys the farm, it would generate $75,000 each year over the next 20 years. In 20 years, based on real estate information, the farm would be worth approximately $2 million.

Required -

1. If Jan wants to make the same return on his investment as on the equity fund, should he buy the farm? Why or why not?

2. What is the farm's net present value with and without the sale of the farm (using 10% as the discount rate)?

3. What is the farm's internal rate of return?

Reference no: EM133175840

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