1. An Indianapolis agribusiness company wants to start an urban vertical farming operation in their city. There are 4 proposals, A-D, with differing discount rates and cash flows, but all with 5-year lifespans. The initial cost of each is $1.5 million. The discount rates are different because of the different risk associated with each project.

Proposal A: 4% Discount Rate

Y1: $350,000

Y2: $350,000

Y3: $350,000

Y4: $350,000

Y5: $350,000

Proposal B: 8% Discount Rate

Y1: $400,000

Y2: $400,000

Y3: $400,000

Y4: $400,000

Y5: $400,000

Proposal C: 13% Discount Rate

Y1: $700,000

Y2: $600,000

Y3: $500,000

Y4: $400,000

Y5: $300,000

Proposal D: 18% Discount Rate

Y1: $200,000

Y2: $400,000

Y3: $600,000

Y4: $800,000

Y5: $1,000,000

Calculate the NPV of each of the 4 proposals and select the proposal the company should select.

Group of answer choices

Proposal A

Proposal B

Proposal C

Proposal D

2.

An urban cooperative in Austin that supplies leafy greens and herbs to local restaurants and grocery stores is looking to expand their operation. The co-op would like to build an aquaponic system to increase their production of greens and also start producing tilapia. The new system would cost $28,000 to purchase and construct. The co-op projects that it will yield $240 of tilapia and $600 of leafy greens every week. Operating expenses are expected to increase by $15,200 annually due to fish nutrients, utilities, maintenance, and additional labor. Suppose that the workers wanted to evaluate this investment over a five-year period of time before committing. They expect that the components could be sold for $5,500 after five years of use. Taxes are expected to stay at 20% for the next six years. The IRS will allow the co-op to depreciate the system using straight line over 15 years. Assume that the terminal value of this investment is $5,500 at the end of five years. The co-op requires an 16% return to capital (pretax).

(i) Calculate the annual operating receipts

a. $28,480

b. $15,200

c. $43,680

d. $43,860

ENTER RESPONSE HERE:

(ii) Calculate the after tax- net returns

a. $22,928

b. $28,480

c. $28,660

d. $22,784

ENTER RESPONSE HERE:

(iii) Calculate the tax savings from depreciation

a. $1,866

b. $2,333

c. $373

d. $299

ENTER RESPONSE HERE:

(iv) Calculate the after-tax terminal value

a. $14,000

b. $8,133

c. $4,400

d. $5,500

ENTER RESPONSE HERE:

(v) Which discount rate should be used for calculating the NPV of this investment?

a. 12.8% b. 16.8%

c. 3.2% d. 4%

ENTER RESPONSE HERE:

(vi) What is the NPV?

a. $51,696

b. $58,302

c. $80,529

d. $51,669

ENTER RESPONSE HERE: