Thanks. I have 2 final questions left could you help with them

1.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 $2.10 million for land and $9.70 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, $2.04 million above book value. The farm is expected to produce revenue of $2.09 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

 

$

 

 

The project should be

 

accepted or rejected

 

.

2. Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain’s opportunity cost of capital is 12.8 percent, and the costs and values of investments made at different times in the future are as follows:

Year

Cost

Value of Future Savings
(at time of purchase)

0

$5,000

$7,000

 

1

4,700

7,000

 

2

4,400

7,000

 

3

4,100

7,000

 

4

3,800

7,000

 

5

3,500

7,000

 

Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accounting system?

Bell Mountain should purchase the system in year 2 ,year 3, year 4 year 1, or year 5 .

 

    • 10 years ago
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