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 $2.20 million for land and $9.85 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 $2.50 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 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, e.g. 5,275.25.) NPV $ The project should be
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 $2.20 million for land and $9.85 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 $2.50 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 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, e.g. 5,275.25.) NPV $ The project should be
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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Transcribed Image Text: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 $2.20 million for land and $9.85 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 $2.50 million above
book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90
million. The marginal tax rate is 25 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, e.g. 5,275.25.)
NPV
$
The project should be
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