2. Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $551,500. The machine has
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Question:
2. Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $551,500. The machine has a 10-year life and an estimated salvage value of $36,000. Delivery costs and set-up charges will be $12,100 and $400, respectively. Top Growth uses straight-line depreciation.
Top Growth estimates that the tractor will be used five times a week with the average charge to the individual farmers of $400. Fuel is $50 for each use of the tractor. The company's cost of capital is 9%.
Instructions
For the new tractor, compute the:
(a) cash payback period.
(b) net present value.
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