A farmer from the Corsaville area calls the Finance Department and wants to know the answer to the following question: Suppose I buy a cow for $6,500 today (now, date 0). The depreciation on the cow would be straight-line to zero over five years (years 1 to 5). Revenues minus costs (not including depreciation), would be $1,300 in each of the next five years (years 1 to 5). In year five, I expect to sell the cow for $5,200. Is this a good investment? He also claims that his tax rate is 30% and his opportunity cost of capital is 10%. Assume that the farmer has constant annual profits of $50,000 from other projects.

What is the net cash flow in year 5?

What is the NPV of this farming project?