A 40acre Christmas tree plantation produces 3500 of net reve

A 40-acre Christmas tree plantation produces $3,500 of net revenue per acre every 9 years. If the interest rate is 8%, what is the maximum amount money you should be willing to pay to acquire the plantation when the first cash flow is 9 years away?

Solution

Answer - FV = PV*(1+i)ⁿ

=> 3500 = PV (1+0.08)⁹

=> 3500/(1.08)⁹ = PV

=> PV = $1758.79

$1,758.79 is the maximum amount that we should be willing to pay to acquire the plantation when the first cash flow is 9 years away.