Question

L egge 0.5/1 uestion 13 w Policies w Attempt History rrent Attempt in Progress - Your answer is partially correct Cullumber Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05 million. This investment will consist of $245 million for land and $9.60 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.15 million, which is $2.10 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 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, eg. 15.25) NPV $ The project should be accepted : eTextbook and Media Attempts: 1 of 2 used Save for Later Submit Answer « Prev Send to Gradebook Next > BA 3400 - Word Ch 12Practice of A

Answer 1

NPV	3042721.49

Accept since NPV is positive

Workings

Depreciation is only on trucks and equipment.

Annual tax shield = Tax*(Cost-Salvage)/Useful life

= 35%*(9.6m-(5.15-2.1)m)

Year	Initial cost	CF from operations	Tax shield	Salvage	Net CF
0	-12050000				-12050000
1		1950000	229250		2179250
2		1950000	229250		2179250
3		1950000	229250		2179250
4		1950000	229250		2179250
5		1950000	229250		2179250
6		1950000	229250		2179250
7		1950000	229250		2179250
8		1950000	229250		2179250
9		1950000	229250		2179250
10		1950000	229250	4415000	6594250

AutoSave o 9.3HD Book1 - Excel Sign in - 0 X File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share Comments = = 0 Σ' ΑΥ Ο Calibri BIU - Z - 11 - Insert - Delete - Format -A A = - A- E General $ -% Number Paste La- 88 . Conditional Format as Formatting Table - Cell Styles Sort & Find & Filter - Select Editing Clipboard Font Alignment to Styles Cells - f Initial cost I Year Initial cost CF from operations Tax shield Salvage Net CF 0 -12050000 =SUM(C3:F3) 1950000 = 35%*(9600000-3050000/10 =SUM(C4:F4) 1950000 =35%*19600000-3050000/10 =SUM(C5:F5) 1950000 =35%*(9600000-3050000)/10 =SUM(C6:F6) 1950000 =35%*(9600000-3050000)/10 =SUM(C7:F7) 1950000 =35%*(9600000-3050000)/10 =SUM(C8:F8) 1950000 =35%*(9600000-3050000)/10 =SUM(C9:F9) 1950000 =35%*(9600000-3050000/10 =SUM(C10:F10) 1950000 =35%*(9600000-3050000/10 =SUM(C11:F11) 1950000 =35%*(9600000-3050000)/10 =SUM(C12:F12) 1950000 =35%*19600000-3050000)/10 =5150000-2100000*35% =SUM(C13:F13) NPV =NPV(10%,64:613)+G3 17 Sheet1 = Ready - + 100% -- ENG 2 5:23 AM 0