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Problem 4 A) A local tree farm is trying to decide which fertilizer to use to grow its trees. It can either buy the famous
Problem 4 A) A local tree farm is trying to decide which fertilizer to use to grow its trees. It can either buy the famous Greenwood Fertilizer, which costs $5 and can grow a tree which can be sold for $8 in 2 buy Brian and Peter's Fertilizer which costs $4 and can grow a tree which can be sold for years, or it can $10 in 5 years. (15 points) What is the NPV of each option given an annual effective interest rate of 5%? (5 points) a) What is the rate of return of each option? (5 points) b) c) Which option should the tree farm pick assuming an infinite time horizon? Why? (5 points)
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