Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
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