FIN 571 Quiz
The following are workout problems from the text and I need to know if I am doing them correctly. The first one I am not sure if my results are wrong due to rounding.
1). Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,109,194. have a life of five years, and would produce the cash flows shown in the following table.
Year Cash Flow
What is the NPV if the discount rate is 13.74 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
Here is my attempt to solve the problem:
Cost of equipment-$2,109,194
Length of project= n=5 years
Required rate of return= k=13.74%
(1.1374)¹ (1.1374)² (1.1374)³ (1.1374) (1.1374)
=-$2,109,194+451,306.49-174,512.21+679,702.32+507,811.30+398,233.25= =-246 671 or -24.67 (both were marked incorrect)
=-246 671 or -24.67 (This is what I came up with the third time)
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.30 million for land and $9.70 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.21 million, $2.40 million above book value. The farm is expected to produce revenue of $2.08 million each year, and annual cash flow from operations equals $1.98 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
Should this project be accepted or rejected?
Thank you for purchasing my