Your father has inherited lots of money, and he has always wanted to own a farm. He is considering the purchase of several farm properties. Additionally, your father expects to sell the farm and retire after owning the farm for a full fifteen years. One of the farms he is looking at has a purchase price of $800,000 after-tax development costs of $40,000 per year for the first five years and after-tax net cash inflows of $35,000 per year for years six through fifteen. To determine the selling price of the farm at the end of the fifteenth year, assume that the farm will increase in value at a rate of  5% per year. Using a 7% cost of capital, calculate the net present value and benefit-cost ratio of this farm investment. Show your work. Explain whether or not and why you should keep this farm among your investment alternatives.

Answer rating: 100% (QA)

To calculate the net present value NPV and benefitcost ratio BCR of the farm investment we need to evaluate the cash flows over the fifteenyear period ... View the full answer