Hagrid has a chance to expand the Hogwarts property by purchasing\ 210-acres of the forbidden forest from the centaurs. According to\ Dr. Sprout, there has been an increase in the demand for Mandrake\ restorative draught, so Hagrid has agreed to farm Mandrakes on the\ acres he purchases. The expected mandrake yield is 185 units per\ acre. The centaurs will sell the land for $7,200/acre. Hagrid can\ borrow the money from Gringotts Wizarding Bank to finance the\ land at a 4.7% annual interest rate. Hagrid expects inflation to be\ 1.9% (the economy is looking up after the departure of he-who-\ must-not-be-named). (10 points total)\ Please round to FOUR decimal places throughout, with the exception of dollars or cents and\ percentages which may be rounded to only 2 decimal places.\ A) Estimate the average annual ownership cost per acre (do not multiply and divide by the number of\ acres in the tract) for that expansion. (Hint: For an input with unlimited life there is no depreciation,\ and the interest is just the value times the real interest rate.) Land maintenance, including tile repair,\ will be about $3.75 per acre annually, taxes are $29 per acre, and liability insurance is $0.95 per acre\ (Fairly low considering the deadly Mandrake cry!!!). (3 points)\ B) What will the average annual cash outlay be per acre on this field? (3 points)\ NOTE: The difference between ownership cost and cash outlay is that the cash outlay is greater by the\ principal payment, and you must pay the nominal interest rate to your lender, not the real rate. (Recall\ our discussion of calculating loan payments in class.)\ *To find the equal annual principal and interest payments (loan payment due), use the amortization\ factor and multiply it by the amount financed. Use an 18-year loan length as life and the nominal interest\ rate in place of the real rate of interest.\ 2\ C) Assume the cash rent on this land would be $270 per acre. Find the percent of the competitive cash\ rent that the ownership cost (from part A) and cash outlay (from part B) is for an acre of this land.\ Simply carry over your ownership cost and cash outlay from above. (2 points)\ Percent of cash rent\ Cash Rent $270 100%\ AAOC ___A____ ___B____\ Cash Outlay ___C____ ___D____\ D) What annual rate of return will Hagrid earn on this land investment if he buys it at its market price and\ cash rents it at the market to his neighbor? The annual return or net rent is the cash rent less\ maintenance, taxes, and insurance. The rate is the annual return divided by the purchase price.\ (2 points)\ 3