Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
Related questions
Question
Blossom company is considering buying a new farm that it plans to operate for 10years. The farm will require an initial investment of $11.95 million. The investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate NPV of this investment.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College