Due to a high demand for corn as a source of ethanol fuel production, a farmer is
Question:
Due to a high demand for corn as a source of ethanol fuel production, a farmer is considering planting more corn, which requires the purchase of a new, larger row crop planter. The planter will cost $25,000 and has an expected service life of six years with salvage value of 10% of the initial purchase price. The new planter allows the farmer to plant the crop in less time and to increase average crop yields. The net cash flow from this more efficient planter is as follows:
n An
0………………………………..................-$25,000
1………………………………….................$6,800
2………………………………….................$6,350
3………………………………….................$8,735
4………………………………….................$7,500
5…………………………………..................$4300
6…………………………………..$7,000 + $1,800
What is the net present value for this purchase if the farmer’s interest rate is 9%?
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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