You are advising the small town of Blackrock regarding future plans for 1,000 acres of forest located near the town. The owner of the forest has offered to sell the land to the town for $2,000,000. The forest provides many recreational benefits for local residents, as well as being the home of much wildlife including an endangered species. After conducting several studies you estimate that the annual recreational and environmental benefits will be $100,000 per year.

Discount rate assumption is 3%

Explain your answer for each part, and support your answer with appropriate calculations either using a spreadsheet (e.g. Excel) or via formulas. a) Considering only the next 50 years, is buying the forest a good idea for the town? Why or why not?

b) What is the maximum amount the town would be willing to pay the landowner to lease the land for 50 years? Explain why.

c) How would your answers to parts a) and b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that the town is growing, not only in population but also in income of the population? Explain. (20 marks)