Pharoah Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05 million. This investment will consist of $2.90 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.30 million, which is $2.40 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $2.00 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, eg. 5,275.25.) NPV $ The project should be

Pharoah Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05 million. This investment will consist of $2.90 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.30 million, which is $2.40 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $2.00 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, eg. 5,275.25.) NPV $ The project should be

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Description: Pharoah Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of$12.05 million. This investment will consist of $2.90 million for land and $9.15 million for trucks and other equip

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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