Cullumber Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.15 million. This investment will consist of $2.00 million for land and $10.15 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 $5.20 million, which is $2.35 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. - NPV is? - The project should be accepted or rejected?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Cullumber Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.15 million. This investment will consist of $2.00 million for land and $10.15 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 $5.20 million, which is $2.35 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.

- NPV is?

- The project should be accepted or rejected?

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