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4 ) Fresco, LLC , an organic fruit grower, is considering purchasing an existing organic peach farm for $ 1 6 million, 2 5 %
Fresco, LLC an organic fruit grower, is considering purchasing an existing organic peach farm for $ million, of which will be attributed to the cost of land and to that of the infrastructure and equipment. Although the remaining useful economic life of the farm is equal to years, the company is planning to resell the farm to a partner company for $ million at the end of Year While the land will not be subject to depreciation, the infrastructure and equipment will be depreciated to zero book value over years using the straightline depreciation method but we have to sell at the end of year The farm is expected to produce a steady revenue of $ million per year; the operating expenses excluding depreciation will be equal to of the revenues. Both the income tax rate and the capital gain tax rate are equal to The company is using of debt and of equity for all of its projects; the companys cost of equity is equal to while its cost of debt beforetax is equal to
a Estimate the projects cash flows year by year. Points
b Estimate the projects WACC. WACC is used as disc rate Points
c Estimate the projects NPV use may use the Excel formula Points
d Estimate the projects IRR manuallyyou may use the Excel NPV formula as you do the guessing
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