As financial manager for a not-for-profit with a focus on land conservation, you have been tasked to review a potential purchase of 1,000 hectares of woodland for $2,500,000 in Pima County, Arizona. The land is of particular interest to your organization because several of the plant species found there are threatened with extinction. The economic team at your organization estimates that the annual environmental benefits will be $125,000 a year. You look at the Financial Times and find that if you borrow money for this project, the interest rate will be 7.5% per annum, which leads you to conclude that the discount rate you should use is 7.5%.
a. Looking only at the next 50 years, is buying the woodland a good idea from a social perspective?
b. What is the maximum amount your organization would be willing to pay for the land or to lease the land for 50 years?