Problem:
You inherited 100 acres of Iowa farmland. There is an active market in this type of land, and similar properties currently sell for $10,000 per acre. If planted with corn, you expect that the land will deliver net cash flows of $800 per acre forever.
Required:
If the discount rate is 10%, how much is the land worth per acre?
- $10,000
- $8,000
- $18,000
- $12,000
Note: Please explain comprehensively and give step by step solution.