Question

Crane Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $3.00 million for land and $8.80 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 $5.20 million, which is $2.15 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.)

NPV  $___________

The project should be (accepted or rejected)

Answer 1

388 389 392 D388 fc =C388*B388 A B C D 386 Year Cash flow PVIF@10% Present value 387 0$ (11.80) 1.000 $ (11.80) 1 $ 1.90 0.909 $ 1.73 - 2 $ 1.90 0.826 $ 1.57 390 3 $ 1.90 0.751 $ 1.43 391 4 $ 1.90 0.683 $ 1.30 5 $ 1.90 0.621 $ 1.18 393 6 $ 1.90 0.564 $ 1.07 394 7 $ 1.90 0.513 $ 0.98 395 8 $ 1.90 0.467 $ 0.89 396 9 $ 1.90 0.424 $ 0.81 397 10 $ 6.35 0.386 $ 398 =1.9+5.2-2.15*35% 399 Net present value $ 1.59 400 401 Accept project 2.45

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