What is the value of the apple groves

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Simply Apple hires you to value apple groves that produce 1.6 billion apples per year. Apples currently sell for $0.10 per 100. Assume that no unexpected hard freezes will occur, and that this level of production can be sustained with normal maintenance. Variable costs are $1.2 million per year, and fixed costs are negligible. The nominal discount rate is 18%, and the inflation rate is 10%.

1. Assuming that apple prices and the variable costs change with inflation, what is the value of the groves? (Ignore taxes and depreciation)

2. Suppose prices increase at the inflation rate, but costs increase at half the inflation rate. What is the value of the apple groves?

 

Reference no: EM13296555

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