Question

In Example 10.1, the land used for the plantations was made available by a local council for FVC Ltd to use at no cost (see Box 1). Assume now that FVC Ltd had to pay rental on the land from the council at the rate of $4 \%$ of the land value per annum. (a) Using Workbook 10.1, recompute the NPV assuming that FVC Ltd had to pay an annual land rental and that the land value on average was $$\$ 2,000$$ per ha. (b) What effect has payment had on IRR? (c) Using the Goal Seek function of Excel, calculate the final stumpage price that FVC Ltd must receive in order to achieve an NPV of 0.

   In Example 10.1, the land used for the plantations was made available by a local council for FVC Ltd to use at no cost (see Box 1). Assume now that FVC Ltd had to pay rental on the land from the council at the rate of $4 \%$ of the land value per annum.
(a) Using Workbook 10.1, recompute the NPV assuming that FVC Ltd had to pay an annual land rental and that the land value on average was $$\$ 2,000$$ per ha.
(b) What effect has payment had on IRR?
(c) Using the Goal Seek function of Excel, calculate the final stumpage price that FVC Ltd must receive in order to achieve an NPV of 0.

Capital Budgeting: Financial Appraisal of Investment Projects

Don Dayananda,… 1st Edition

Chapter 10, Problem 3

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Step 1

- Use the same cash flows and discount rate as in Workbook 10.1, but now subtract the annual land rental cost from the cash flows for each year. - Use the land value of $2,000 per hectare to calculate the annual land rental cost (4% of $2,000). Show more…

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In Example 10.1, the land used for the plantations was made available by a local council for FVC Ltd to use at no cost (see Box 1). Assume now that FVC Ltd had to pay rental on the land from the council at the rate of $4 \%$ of the land value per annum. (a) Using Workbook 10.1, recompute the NPV assuming that FVC Ltd had to pay an annual land rental and that the land value on average was $$\$ 2,000$$ per ha. (b) What effect has payment had on IRR? (c) Using the Goal Seek function of Excel, calculate the final stumpage price that FVC Ltd must receive in order to achieve an NPV of 0.

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