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1. (16) Suppose you have one acre of land that you plan to rent for pasture for $5,000 the first year and S6,000 the next
1. (16) Suppose you have one acre of land that you plan to rent for pasture for $5,000 the first year and S6,000 the next year. At the end of two years, the government will seize your property, and it will be worthless, or valued at $0. There is no classicization system, and all properties are taxed at the same rate, regardless of their use. This is a weird place, and they send you a property tax bill for a fixed amount two years in advance, with the property tax due at the end of each years. The discount rate of this would-be landlord is 5 percent (his opportunity cost). Assume the stream of rents and taxes are all capitalized into the value of the land. Complete the table. Rent Tax $200.00 Net $5,000.00 Item Tear 1 (discounted) Year 2 (discounted) Current Value $6,000.00 $200.00
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