ABC. Farm Co. enter into a bid to a farm project that will supply a chain of hotels and restaurants with farmproducts that currently have monthly demand of 20 000 kg vegetables at $2/kg. ABC plans to invest indeveloping its farm by adding a new tractor that will increase its farm productions which currently produceonly 8000kg/month with manual labor. The new tractor will add about 8000kg/month in the first year, thenit will produce 20 000kg/month for the next 5 years. The operating expenses is 68% of revenue, excludingdepreciation expenses. Tax rate is 38%.

Instructions: Using capital budgeting analysis determine if the prospect of adding new tractor is feasible

Answer rating: 100% (QA)

To determine whether the addition of a new tractor is feasible we need to perform a capital budgeting analysis that takes into account the expected ca... View the full answer