You are the mayor of the coastal town of Port Avalon and a local fisherman

has offered to sell you $500$ acres of coastal wetlands for $$20,000.$ You are con$-$

sidering this purchase to protect the endangered sea turtle populations and to

maintain the area's attractiveness to tourists. After reviewing the latest issue

of the Economist, you decide that the appropriate discount rate for evaluating

this investment should initially be $1\%,$ reflecting a very supportive financial en$-$

vironment. Your Environmental Conservation Department estimates that the

annual benefits from tourism and conservation efforts will be $$5,000$ a year.

Compute the Net Present Value $($NPV$)$ of the investment when the dis$-$

count rate is $1\%.$ Is the investment dynamically efficient? Explain why

or why not.

Now, assume that the discount rate is adjusted to $10\%,$ reflecting a more

stringent financial evaluation. Compute the NPV under this new condi$-$

tion. Discuss whether the investment is dynamically efficient under this

scenario.

Consider how your answers might change if the annual benefits from

tourism and conservation efforts were to increase by $12\%$ per year due

to growing visitor numbers and heightened awareness of environmental

conservation. How would this growth affect the investment's evaluation?

Find the NPV when the discount factor is $10\%.$ Does your answer from

part $2)$ changes? If yes, why?

What are the practical issue related to determine if an investment is dy$-$

namically efficient of not using this methodology? Solve the exercise with a time horizon from t$=0$ to t$=5($last period$)$