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Alan’s Tree Garden, SDN BHD Alan’s Tree Garden, SDN BHD is doing well after its incorporation

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Alan’s Tree Garden, SDN BHD Alan’s Tree Garden, SDN BHD is doing well after its incorporation. Suresh Kumar, president, chief of operations, and majority shareholder, currently has a planting of 10,000 three-year-old Japanese dogwood trees in a recently introduced white-flowered variety. Kumar can sell this type of tree at a higher price than the more common red-flowered variety. The trees are now 6 feet tall on average and can command RM24 each. At present, Kumar has priced 8-foot trees at RM34 and 10-foot trees at RM40. Landscape contractors avoid trees larger than 10 feet tall because they are difficult to transplant successfully. With average weather, the 6-foot trees will be 8 feet tall in three years and 10 feet tall in six years. Suresh has to make financial decisions almost every day. Today’s decision involves present value and future value computations, which Jake learned as a student at SEGi University. He wants to know if he should sell the trees immediately at 6 feet tall, three years from now at 8 feet tall, or six years from now at 10 feet tall. Size Age Current Market Value 6` 3 years RM24 8` 6 years RM34 10` 9 years RM40

QUESTION 1 Because of inflation, Suresh expects the price at which he can sell the trees to increase by 3% per year. What price does he expect to receive if he keeps the trees until they reach 8 feet or 10 feet tall?

Compute and evaluate the answer. (10 marks)

QUESTION 2 If Suresh discounts the future price of the trees at 10% per year, what is the present value of their future prices?

Compute and evaluate the answer. (10 marks)

QUESTION 3 Using the time value of money equation, compute the growth rate of the trees between the third year and the sixth year and between the sixth year and the ninth year. Compute and evaluate the answer. (10 marks) 5

Question 4 When should Suresh sell the trees? Critically evaluate your answer. (10 marks)

Question 5 A major landscape contractor who has bid successfully on a large-scale Ipoh beautification and urban greening project has offered to buy all 10,000 flowering dogwood trees at a price of RM28,000, payable immediately. However, the contractor does not need the trees for three years. If Suresh accepts, he will be obliged to deliver 10,000 trees three years from today. If anything should happen to his own crop, he would need to buy trees on the open market at the prevailing price, which might be higher or lower than the price estimated in

Question 1. Should Suresh accept the offer if his required rate of return is 10%? Discount the price at 10%. Critically evaluate the answer.