You are considering buying a farm. It is 5000Ha. It is expected to produce each year 2500 tonnes of grain which sells for $300/t.net of freight and marketing costs. The crop variable costs are $100/tonne. The farm will also produce and sell 550 steers for $1000/head. The annual variable costs of the steer activity are $150000 The farm overhead costs are $400000 p.a. The salvage value of the land, machinery and stock in year 15 is 100% of the purchase price. You have a 15 year planning horizon. Your required rate of return is 5% p.a. real. Ignoring risk for the exercise, how much would you pay for the total package of farm land, stock and mcachinery. All dollars are real-there is no inflation. If you borrowed $5m over 15 years at 6% interest rate as an amortization loan what is the annuity ?

Answer rating: 100% (QA)

To determine the value you should pay for the total package of farm land stock and machinery we need to calculate the net present value NPV of the cash flows generated by the farm over the 15year plan... View the full answer