Question
Your firm is considering a tree farm with a required return of 12%. If you start the tree farm today, your firm will incur an
Your firm is considering a tree farm with a required return of 12%. If you start the tree farm today, your firm will incur an initial cost of $980 and will receive cash inflows of $730/year for 3 years. If you instead wait one year to start the farm, the initial cost will rise to $1040 and the cash flows will increase to $840 a year for the following 3 years. The property is essentially forecasted to be useless after 3 years of trees have been grown and harvested. Would your firm be better off starting the tree farm now or waiting to start it one year from now? Explain clearly.
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