for business mangement

Question 3. (8 pts total) a. You are currently a landowner, and you lease your land for $40/ac (paid once annually). You have a guarantee contract to lease your land for 25 years. You want to move in 25 years and you plan to sell your land for $800/ac. If you assume a 5.0% annual interest rate, how much is the land worth today? Hint: There are two parts to this problem. First, what is the PV of the annual payments (aka annuity) you expect to receive for the land the next 25 years? Second, what is the PV of the one-time lump sum payment you expect to receive for the land at the end 25 years? Add the two values together. 6 pts b. If someone offered you $750/ac today for your land, given the information above, should you accept their offer? Why? 2 pts Hint: Is $750/ac today worth more than the PV of the land calculated in part a