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3. (7 pts.) Your firm is considering buying a tree farm with a12% required return. If trees are planted today, the initial costwill be $490 and the farm will generate cash inflows of $395/yearfor 3 years. If the farm owner waits 1 year to plant trees, theinitial cost will rise to $520 and the cash flows will increase to$420/yr. for the following 3 years. If the owner plants trees intwo years, the initial outlay will be $560 and cash flows will be$465/yr. at t = 3, 4, & 5. The property will be worthless after3 years of trees have been grown and harvested. The farmessentially thus has three mutually exclusive options: plant trees(i) now, (ii) one year from now, or (iii) two years from now. (a)Determine a fair price (a fair valuation) for this project andbriefly explain how you arrive at the price. (b) Next, suppose thatonly options ii & iii are available for the farm. Calculate afair price for the farm and again briefly explain how you arrive atthe price.