Archer Daniels Midland Company is considering buying a new farm that it plans to

Question

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 $12.10 million. This investment will consist of $2.90 million for land and $9.20 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 $5.11 million, $2.21 million above book value. The farm is expected to produce revenue of $2.07 million each year, and annual cash flow from operations equals $1.88 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.

Explanation / Answer

i have given all formula and substitution ....just calculate the value of CF10 first ....then DCF1 to DCF10 then add DCF0 to DCF10 u will get the required NPV

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