You work for a private land management consulting firm. A client has requested a financial feasibility study on the purchase of forest land. You determine a forest management investment of $300 per acre would be required one year after the property is purchased. You estimate $1,800 per acre in timber harvesting revenue will be generated every 10 years in perpetuity beginning in 20 years. Annual property taxes of $5 per acre will begin immediately when the land is purchased. Your client’s opportunity cost of capital for this project is 9.5 percent.
1-What is the per acre present value of the investment in forest management?
2-What is the per acre present value of the timber harvesting revenue?
3-What is the per acre present value of the annual property taxes?
4-What is the maximum price per acre you would advise your client to pay for the property based on its ability to produce timber income?