Champ Farm Ltd. is considering the purchase of a combine harvester to harvest and sell wheat...
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Champ Farm Ltd. is considering the purchase of a combine harvester to harvest and sell wheat on one of its many properties. The combine harvester is expected to have a 10-year life. Other information pertaining to this potential investment follows: Cost of the combine harvester $448,255 Working capital investment required at the beginning of the harvester's life $20,070 Annual cash receipts from the harvester $209,862 Annual cash disbursements from the harvester $136,410 Salvage value of harvester in 10 years $35,860 9% Champ Farm requires a minimum return on investment of: At the end of the harvester's life, the working capital investment would no longer be required. Required: Calculate the net present value of harvesting wheat with the combine harvestor. Indicate whether Champ should undertake the investment, and why. Champ Farm Ltd. is considering the purchase of a combine harvester to harvest and sell wheat on one of its many properties. The combine harvester is expected to have a 10-year life. Other information pertaining to this potential investment follows: Cost of the combine harvester $448,255 Working capital investment required at the beginning of the harvester's life $20,070 Annual cash receipts from the harvester $209,862 Annual cash disbursements from the harvester $136,410 Salvage value of harvester in 10 years $35,860 9% Champ Farm requires a minimum return on investment of: At the end of the harvester's life, the working capital investment would no longer be required. Required: Calculate the net present value of harvesting wheat with the combine harvestor. Indicate whether Champ should undertake the investment, and why.
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NPVDiscounted Inflows inital costs initial costscost ... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
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