Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Part (a)
A farmer plans to spend $110,000 to plant pomegranate bushes. It will take 4 years for the bushes to provide a usable crop. He estimates that every year for 20 years after that he will receive a crop worth of $10,500 per year.
Required:
(i) If the discount rate is 9%, calculate the NPV of this investment.
(ii) Should the farmer invest in planting the pomegranate bushes?
(iii) Discuss what incentives the government can provide to the farmer to make the investment more worthwhile.
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