On June 1, farmer Lima approaches his neighbour about buying 100 acres of his neighbours...
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On June 1, farmer Lima approaches his neighbour about buying 100 acres of his neighbours land at $2,000 per acre. M. Lima is pretty sure that he wants the land but is unable to arrange financing for six months. The neighbour proposes to grant a six-month option on the property at $2,000 per acre in exchange for a $100 per acre fee. Assume there are no additional transaction fees for buying and selling land or land options.
On December 1, land values are $2,500 per acre. What should M.Lima do? What will his net profit/loss be?
What should M. Lima do if land values are $1,500 per acre on December 1? What would his profit/loss be?
Suppose that On December 1 land values are $2,050 per acre. What should M. Lima do? What is his net profit/loss?
On October 1, land values are $2,500 per acre. Mr. Doe offers M. Lima $600 per acre for his option. Should M. Lima exercise the option or sell it? What is his net profit/loss?
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