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 $12.10  million. This investment will consist of $2.60  million for land and $9.50  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 $5.09  million, $2.27  million above book value. The farm is expected to produce revenue of $2.03  million each year, and annual cash flow from operations equals $1.92  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 $ 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 $12.10 million. This investment will consist of $2.60 million for land and $9.50 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 $5.09 million, $2.27 million above book value. The farm is expected to produce revenue of $2.03 million each year, and annual cash flow from operations equals $1.92 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.

Explanation / Answer

NVP=$ 7.5 million.

it should not buy.

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