FIN 571 Question (Finance 571) - 52359

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MR2Spyder

MR2Spyder

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  • From: Finance,
  • Posted on: Thu 27 Mar, 2014
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Request Description

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 $11.90 million. This investment will consist of $2.30 million for land and $9.60 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 $5.14 million, $2.39 million above book value. The farm is expected to produce revenue of $2.01 million each year, and annual cash flow from operations equals $1.82 million.

The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent.

Calculate the NPV of this investment.

(Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
 

NPV   $  

 

The project should be    acceptedrejected .


Solution Description
  1. Cost/Expenses: 11.90 $ mill

2)Sale price after 10 years