Mr. Agirich has the opportunity to purchase some farm land at $3,000/acre. He expects that real land prices will increase at 5% per year and inflation will be 2%. His pretax risk adjusted discount rate is 16%. Assume that the land will be sold in 20 years and the marginal tax rate is 23%. The effective interest rate on land loans is 3%.

(i) Calculate the after-tax risk adjusted discount rate.

a. 12.3% b. 10.7%

c. 3% d. 2.3%

e. None of the answers are correct

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(ii) Calculate the real price of land in 20 years.

a. $4,458 b. $5,418

c. $7,960 d. $30,529

e. None of the answers are correct

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(iii) Calculate the nominal price of land in 20 years.

a. $6,624 b. $45,364

c. $8,051 d. $11,828

e. None of the answers are correct

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(iv) Calculate the after-tax terminal value of the land.

a. $11,828 b. $9,798

c. $7,960 d. $3,000

e. None of the answers are correct

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(v) Calculate the Present Value of the after-tax terminal value.

a. $1,162 b. $782

c. $963 d. $294

e. None of the answers are correct

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(vi) What is the approximate maximum bid price for this land?