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##### The following are workout problems from the text a...

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Solution

**Question**

The following are workout problems from the text and I need to know if I am doing them correctly. The first one I am not sure if my results are wrong due to rounding. 1). Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,109,194. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $513,316 2 -225,749 3 1,000,114 4 849,873 5 758,037 What is the NPV if the discount rate is 13.74 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) Here is my attempt to solve the problem: Cost of equipment-$2,109,194 Length of project= n=5 years Required rate of return= k=13.74% NPV= =-$2,109,194+513,316-225,749+1,000,114+849,873+758,037 (1.1374)? (1.1374)? (1.1374)? (1.1374) (1.1374) =-$2,109,194+451,306.49-174,512.21+679,702.32+507,811.30+398,233.25= =-246?671 or -24.67 (both were marked incorrect) =-246?671 or -24.67 (This is what I came up with the third time) (1.1374)?=1.2936 (1.1374)?=1.4714 (1.1374) 4=1.6736 (1.1374) 5=1.9035 Next problem: Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.30 million for land and $9.70 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.21 million, $2.40 million above book value. The farm is expected to produce revenue of $2.08 million each year, and annual cash flow from operations equals $1.98 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) NPV=$ Should this project be accepted or rejected?

Paper#4052 | Written in 18-Jul-2015

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