Question

Jackson Enterprises has just spent ?$300,000t o purchase land for a future beach front property development project that will include rental? cabins, lodge, and recreational facilities. Jackson Enterprises has not committed to the development? project, but will decide in five years whether to go forward with the project or sell off the land. Real estate values increase annually at 2.5?% for unimproved property in this area. For how much can Jackson Enterprises expect to sell the property in five years if it chooses not to proceed with the beach front development? project? What if Jackson Enterprises holds the property for ten years and then? sells?

or how much can Jackson Enterprises expect to sell the property if it holds the property for ten years and then? sells?

Answer 1

We need to compute the future value of the property. Future value of an amount can be computed as -

FV = Amount x (1 + r)ⁿ

where, r is the rate of interest, n being no. of years

Hold for 5 years

FV = $300,000 x (1 + 0.025)⁵ = $339,422.46386718 or $339,422.46

Therefore, if Jackson holds the property for 5 years, he can expect to sell it for $339,422.46.

Hold for 10 years

FV = $300,000 x (1 + 0.025)¹⁰ = $384,025.3632589 or $384,025.36

Therefore, if Jackson holds the property for 10 years, he can expect to sell it for $384,025.36.