A farmer wants to establish a vineyard and the grape vines and trellising costs $425,000 establish and
Question:
A farmer wants to establish a vineyard and the grape vines and trellising costs $425,000 establish and construct. The farmer already owns the land. In years 1, 2, 3, and 4 the vineyard has maintenance and production costs of $30,000 annually in order to care for the vines. Starting in year 5 the vineyard should earn an after-tax net income of $15,000 and in year 6, $30,000. From that point on it is expected to earn $90,000 annually for its expected life of 30 additional years when it will have no salvage value. The farmers cost of capital is 8 percent.
1. Calculate the net present value. Then calculate the Internal Rate of Return.
2. In which financial statement (income statement, statement of owner's equity, balance sheet, or statement of cash flows) would the following items be found? Some items can appear on more than one statement.
owner withdrawals
accounts payable
land
depreciation expense
accumulated depreciation
cash received from the sale of a hay baler
wheat sales
net income
accounts receivable
net increase or decrease in cash
labor expense
3. Arrange the items below in their proper order on an income statement and calculate net farm income from operations, net farm income, and net income.
Operating expenses | $390,000 |
Interest expense | 30,000 |
Income taxes | 40,000 |
Miscellaneous expense | 5,000 |
Loss on the sale of a capital asset | 20,000 |
Gross revenues | $550,000 |
Expert Answer:
To calculate the net present value NPV we need to discount all future cash flows to their present va... View the full answer
