A farmer has been given the opportunity to become a part ownerin a local fertilizer business. If the farmer becomes an owner ofthe fertilizer business, he will receive $4,000 each year from thefirm's profits. In addition, the farmer will receive a discount onfertilizer and he believes the discount will reduce his fertilizercosts by $2,000 per year. The farmer plans to retire in 25 yearsand thinks he can sell his equity in the fertilizer business for$50,000.

(i) Calculate the market value of this investment if the marketrate of return on comparable investments is 8%

a. $28,650

b. $71,350

c. $103,815

d. $68,514

e. None of the above

(ii)           Calculatethe Net Present Value if the price of this investment is $60,000and the farmer’s required rate of return is 15% (discount rate) andstate if this investment is acceptable.

a.            -$31,350;Unacceptable

b.            $43,815;Acceptable

c.             $11,350;Acceptable

d.            $8,514;Acceptable

e. None of the above

(iii)          Calculatethe yield on this investment if the price of this investment is$60,000 and state if this investment is acceptable if the requiredrate of return is 15%.

a.            9.8%;Acceptable

b.            22.9%;Acceptable

c.             3.53%;Unacceptable

d.            15%;Acceptable

e. None of the above

(iv)         Afterthe farmer has purchased part of the fertilizer business, hediscovered that the decrease in fertilizer costs per year was only$1,000 per year instead of the $2,000 he was expecting and he onlysold the business for $5,000. Given that he paid $60,000 for thebusiness, what was the true yield?

a.            8.9%

b.            8.1%

c.             15.0%

d.            6.85%

e. None of the above