Question
Ramsay is considering the purchase of 310 acres of land for $2,230.72 per acre in Galveston. A bank will loan Ramsay $2,000 per acre of
Ramsay is considering the purchase of 310 acres of land for $2,230.72 per acre in Galveston. A bank will loan Ramsay $2,000 per acre of land and the loan will be fully amortized over 22 years at 15% (annual payments). The outstanding balance of loan will be paid at the end of the third year. Assume that the marginal tax rate is 18%. Suppose that the following information is given:
(Net cash flow on a per acre basis)
Net Cash Flow before debt in Year 1= $254.00
Net Cash Flow before debt in Year 2= $169.00
Net Cash Flow before debt in Year 3= $2,403.00
(i) How much down payment is needed to purchase the 310 acres?
a. $67,446 b. $58,648
c. $71,523 d. $81,662
e. None of the answers are correct
Enter Response Here:
(ii) Calculate the amount of loan payment per acre per period.
a. $370 b. $267
c. $257 d. $314
e. None of the answers are correct
Enter Response Here:
(iii) Calculate the per acre tax savings from paying the interest in Year 2.
a. $30 b. $29
c. $23 d. $53.61
e. None of the answers are correct
Enter Response Here:
(iv) How much money needs to be generated from other parts of the business to cover the cash deficit for the 310 acres in the 1st year, so that the investment is financially feasible?
a. $11,212 b. $2,024
c. $7,791 d. $10,927
e. None of the answers are correct
Enter Response Here:
(v) How much money needs to be generated from other parts of the business to cover the cash deficit for the 310 acres in the 2nd year, so that the investment is financially feasible?
a. $36,912 b. $28,495
c. $30,267 d. $42,449
e. None of the answers are correct
Enter Response Here:
please explain answers
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started