Question
Brandon has almond orchards, but he prefers to eat walnuts instead. His neighbor, an owner of the walnut orchard, has offered to swap this years
Brandon has almond orchards, but he prefers to eat walnuts instead.
His neighbor, an owner of the walnut orchard, has offered to swap this years crop with him. Assume Brandon produces 1000 tons of almonds today and his neighbor produces 700 tons of walnuts today. If the price of almonds is $92 per ton and the price of walnuts is $150 per ton. However, due to some financial constraint, his neighbor has to make five annual payments from today until the end of the 4th year. Each payment would be one-fifth of the income from his walnut crop. Suppose bank's interest rate is 6% today.
What is the net present value of swapping with his neighbor?
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