1. The farmer believes that the guidance system will add the value of improved f
ID: 1138967 • Letter: 1
Question
1. The farmer believes that the guidance system will add the value of improved farming, more uniform treatments, less driver skill needed and extended hours of operation. He believes improved yields and reduction in operating costs will increase his profits by $1,000 per year. He plans to keep the Guidance system for 10 years. At the end of 10 years he believes he can sell it for $500. Calculate the market value of this investment if the market rate of return on comparable investments is 12%
a.$5,650
b. $5,811
c. $17, 549
d. $18,049
e. None of the above
2.Calculate the Net Present Value if the price of this investment is $4,799 and the farmer’s required rate of return is 12% (discount rate) and state if this investment is acceptable.
-$1,012; Unacceptable
$5,701; Acceptable
$1,012; Acceptable
$5,811; Acceptable
None of the above
3. Calculate the yield on this investment if the price of this investment is $4,799 and state if this investment is acceptable if the required rate of return is 12%.
16.7%; Acceptable
16.2%; Acceptable
20.8%; Acceptable
12%; Acceptable
None of the above
4.After the farmer has used this Guidance system for 10 years, he discovers that the increase in profits was only $900 and the 10 year old guidance system was antiquated and he couldn’t sell it. Given he paid $4799 for the guidance system, what was the true yield?
16.7%
14.1%
12.0%
13.4%
None of the above
Explanation / Answer
Solution 1 :- Year Increase in profit Salvage value PVAF@12% Present value 1 1000 0.8929 892.8571 2 1000 0.7972 797.1939 3 1000 0.7118 711.7802 4 1000 0.6355 635.5181 5 1000 0.5674 567.4269 6 1000 0.5066 506.6311 7 1000 0.4523 452.3492 8 1000 0.4039 403.8832 9 1000 0.3606 360.6100 10 1000 5000 0.3220 1931.8394 Market value of investment 7260.0892 Therefore all the answer given are incorrect the answer is none of the above As per chegg there is a neeed to solve one question at once please ask the other question as separate question
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