Question: Archers Daniels Midland Company is considering buying a new farm
Archers 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 million. The investment will consist of $2 million for land and $10 million for trucks and other equipments. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years at a price of $5 million, $2 million above book value. The farm is expected to produce revenue of $2 million each year, and annual cash flow from operates equals $1.8 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.
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