Question
Assume that you are an investor with rRBT= 0.075 and f= 0.05. You are in a 30% tax bracket and are considering whether to invest
Assume that you are an investor with rRBT= 0.075 and f= 0.05. You are in a 30% tax bracket and are considering whether to invest in a tract of land that is expected to return $75 per acre (in 2022$) into the foreseeable future.
a. Determine the maximal per acre price you could afford to pay if you wanted to receive an after-tax rate of return equal to your current opportunity cost after-tax rate of return. Assume that only the real component of your current annual nominal accruing returns are taxed as they accrue.
b. Assume instead that the real component and 25% of the nominal component of your current annual accrued returns are taxed each year. How would this change the maximal per acre bid price you would be willing to pay?
Please do not use excel, thank you!
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