Archer Daniels Midland Company is considering buying a new farm that it plans to

Question

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 $11.80 million. This investment will consist of $2.40 million for land and $9.40 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 $5.20 million, $2.14 million above book value. The farm is expected to produce revenue of $2.03 million each year, and annual cash flow from operations equals $1.91 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 $

Explanation / Answer

Ans. NPV= $1.94 mn

Intial Outlay (In millions) Investment -11.80 Operating cash flow Annual cash flow (PAT+ Dep.) 1.91 Terminal cash flow Salvage value of investment 5.20 NPV= 1.94

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.