Suppose you inherit an orange grove and it generates an annual return of $16,000. You want to sell it. The interest rate is 8 percent. What should you expect to receive for it?

Question

Quizplus · Accepted Answer

To determine the value of the orange grove, you can use the formula for the present value of a perpetuity: $PV = \frac{C}{r}$, where $C$ is the annual return and $r$ is the interest rate. Plugging in the given values, $PV = \frac{16000}{0.08} = 200,000$. This means you should expect to receive $200,000 for the orange grove.

Suppose You Inherit an Orange Grove and It Generates an Annual