FCF and NPV for a project: Archer Daniels Midland Company is considering buying a new farm that

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FCF and NPV for a project: 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 million.

This investment will consist of $2 million for land and $10 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5 million, which is $2 million above book value. The farm is expected to produce revenue of $2 million each year, and annual cash flow from operations equals $1.8 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.

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Fundamentals Of Corporate Finance

ISBN: 9781119795438

5th Edition

Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates

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