An investor is planning to establish a new business to grow and produce tiger prawns in Northern Australia. The development proposal is for 20 hectares (ha) of ponds for prawn production at a total capital cost of $10,000,000 (including land purchase, new infrastructure and new ponds). You judge the ponds to be capable of producing a gross margin per pond hectare of $50,000 starting in year 2 (no income or variable costs in year 1). You expect the annual overheads of running this prawn farm would be $100,000 which will start from year 1. The initial capital investment of land, infrastructure and ponds will maintain their purchase value in real terms over the life of the project. New investment in machinery of $1,000,000 is also required to be spent straight away upon development starting and will have a salvage value in year 5 of 50 per cent of original purchase price. The required real rate of return of the investor is 6 per cent per annum. All figures shown are real terms, and are net of tax and stamp duty.Using a 5 year planning period, calculate the net present value (NPV) of this investment. Please show your workings and calculations in a table.Explain whether the proposed aquaculture business is a good investment idea or not for the investor.
An investor is planning to establish a new business to grow and produce tiger prawns in Northern Australia. The development proposal is for 20 hectares (ha) of ponds for prawn production at a total capital cost of $10,000,000 (including land purchase, new infrastructure and new ponds). You judge the ponds to be capable of producing a gross margin per pond hectare of $50,000 starting in year 2 (no income or variable costs in year 1). You expect the annual overheads of running this prawn farm would be $100,000 which will start from year 1. The initial capital investment of land, infrastructure and ponds will maintain their purchase value in real terms over the life of the project. New investment in machinery of $1,000,000 is also required to be spent straight away upon development starting and will have a salvage value in year 5 of 50 per cent of original purchase price. The required real
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