Question

magine that the current owner of the land in the previous exercise was willing to sell the land for $2 million. Assuming this amount equaled the social opportunity cost of the land, calculate the net benefits if the county were to purchase the land as a permanent wildlife refuge. In making these calculations, first assume a zero annual growth rate in the $110,000 of annual real benefits; then assume that these benefits grow at a rate of 2 percent per year.

Answer 1

Answer:

$1,666,667

Explanation:

Let assume that the annual growth rate is Zero

PV = ($110,000)/(.05)

= $2,200,000

NPV= $2,200,000 - $2,000,000

= $200,000

Let assume that the benefit growth rate is 2%

PV = ($110,000)/(.05-.02)

=$110,000/0.03

= $3,666,667

NPV=

$3,666,667 - $2,000,000

= $1,666,667