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 $12.10 million. This investment will consist of $2.90 million for land and $9.20 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 $5.00 million, $2.41 million above book value. The farm is expected to produce revenue of $2.06 million each year, and annual cash flow from operations equals $1.96 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.
NPV = $ ??
HINT - This is a similar question. Some of the numerals are slightly altered, but the answer at the end is correct. I have no idea how this answer was calculated so I need help with the question above. Hopefully this sample question gives you an idea on how to calculate. "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 $12.10 million. This investment will consist of $2.20 million for land and $9.90 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 $5.25 million, $2.11 million above book value. The farm is expected to produce revenue of $2.04 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent."
Correct Answer = 1,314,056.05