You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the moose and other wildlife that lives there as well as the recreational value to your constituents. You look at the Financial Times and find that if you borrow money for this project, the interest rate will be 5% per annum, which leads you to conclude the discount rate you should use is 5%. Your Parks Department estimates that annual recreational and environmental benefits will be $100,000 a year.

a.) Looking only at the next 50 years, is buying the woodland a good idea?

b.) What is the maximum amount you would be willing to pay the landowner to lease the and for 50 years?

c.) How would your answers to (a) and (b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that Wasilla is growing, not only in population but in income of the population?