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(solution) FCF and NPV for a project: Midland Ltd is considering buying a


FCF and NPV for a project: Midland Ltd is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11,750,000. The investment will consist of $2,000,000 for land and $9,750,000 for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years at a price of $5 million, $2 million above book value. The farm is expected to produce revenue of $1,400,000 each year, and an after tax annual cash flow from operations of $1,260,000. The marginal tax rate is 35 percent, and the appropriate discount rate is 10.00 percent. NPV = $


Total cash flow

 

before

 

depreciation =

 

(X2) Year

 

0

 

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10 $

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$ 0

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00

 

1,400,000.00...

 


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Sep 13, 2020

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