Question
Assume that a tract of land is expected to return $65 per acre in current purchasing power into the indefinite future. Let r RBT =
Assume that a tract of land is expected to return $65 per acre in current purchasing power into the indefinite future. Let rRBT = 0.05, f = 0.04, T = 0.35, and assume that 60% of a potential investors nominal before tax opportunity cost return is tax sheltered (i.e. 40% is taxed). The lands annual returns are taxed at the 35% rate but the change in annual nominal land value is not taxed as it accrues. Determine the market price (ignoring taxes) of this land and decide whether the tract of land would be a good investment for the wealth maximizing investor.
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