Question

Sandhill Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $220 for Land and $9.90 million for trucks and other equipment. The land trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.10 million, which is $2.5 million above book value. The form is expected to produce revenue of $2.10 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 15.25) NPV $ The project should be

Answer 1

Follow the steps below to calculate the NPV of the project:

Step :1

Calculate the present value of cash inflows as follows:

$yM3m9GKF+j0AAAAASUVORK5CYII=$

Therefore, the PV of cash inflows are $11,674,677.5

Step:2

Calculate the PV of salvage value at the end of year 10 as follows:

$8DW3lCP7YrYj4AAAAASUVORK5CYII=$

Therefore, the PV of salvage value is $1,676,149.45

Step:3

Calculate the NPV of the investment as follows:

$uL+0AvwAAAABJRU5ErkJggg==$

Therfore, the NPV of the project is .