PROBLEM THREE: 20 POINTS Now consider the following project, a modification of t

Question

PROBLEM THREE: 20 POINTS Now consider the following project, a modification of the project in problem one. plots are fertilized, the hunting club is willing to pay an additional $250 of rent each year, shown by the cash flows, below. Conduct an analysis of the listed in problem 1. Would you recommend adding the fertilization If the food .as added component from the project if your cost of capital is 12%? a Year Mark hafod plos Activity Mark harvest for openings Establish food plots Revenue from hunting lease Cash Flow ($2,000) ($10,000) $1,650 1-20 ($465) ($475) $8,000 ($475) 1-20 Property taxes Fertilize food plots Harvest timber in openings Fertilize food plots Removal of invasive and exotic plants Fertilize food plots Fertilize food plots Timber stand improvement- thinning to improve species composition Fertilize food plots Fertilize food plots Fertilize food plots Fertilize food plots Fertilize food plots Fertilize food plots Timber stand improvement - thinning to improve species composition ($8,000) (S475) ($475) 10 $12,000 10 12 14 16 18 20 ($475) ($475) ($475) ($475) SA75) ($475) 20,000 20 PROBLEM FOUR: 30 POINTS

Explanation / Answer

We need to conduct the NPV analysis @ 12% cost of capital for the cash flows given.

We need to bring all the cash flows at year 0 and conduct NPV analysis.

PV = K/(1+r)^n

K = Cash Flow

r = cost of capital

n = number of years

So, NPV = $3,340.99

Since the NPV is positive, we recommed adding the fertilization.

Year Activity Cash Flow NPV @ 12% 0 Mark Harvest for opening -2000 -2000 1 Establish food plots -10000 -8928.57 2 Fertilize food plots -475 -378.67 3 Harvest timber in openings 8000 5694.24 4 Fertilize food plots -475 -301.87 5 Removal of Exotic Plants -8000 -4539.41 6 Fertilize food plots -475 -240.65 8 Fertilize food plots -475 -191.84 10 Fertilize food plots & Timber stand improvement 11,525 3710.74 12 Fertilize food plots -475 -121.92 14 Fertilize food plots -475 -97.19 16 Fertilize food plots -475 -77.48 18 Fertilize food plots -475 -61.77 20 Fertilize food plots & Timber stand improvement 19525 2024.09 1-20 Revenue from hunting lease 1650 12,324.58 1-20 Property Taxes -465 -3473.29 TOTAL 3,340.99

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