Ag Supply Store has extra cash. They can put the cash into their investment account and earn a 3% interest rate, but are interested in potentially expanding their business. They have the opportunity to build a small feed mill which would allow them to purchase grains and mix their own feeds rather than buying premixed feeds. The cost of the new feed mill is $80 per ton and they want to build a mill that can handle 5,000 tons. Ag expects that after 20 years, there would be no salvage value and the feed mill would need to be replaced. The owners feel that a 12% return should be expected from the new project in order to undertake it. In addition, they would like a payback period of less than 8 years and a simple rate of return of at least 25%. Expected net returns before depreciation resulting from the investment and estimated depreciation expenses are show in the table below. Using the table below, answer questions a, b, c, d, e and f and SHOW YOUR WORK!

1. What is the payback period for this investment?
2. What is the simple rate of return for this investment?
3. What is the net present value of this investment, using a 12 percent return required by the owners?
4. What are the limitations of each of these methods?
5. Do you believe this is a good investment project for Ag Supply Store? Why or why not?
6. Using an excel spreadsheet or a financial calculator, determine the internal rate of return for the investment.

Estimated net profit and depreciation expense for new feed mill
Year	Net profit before depreciation*	Depreciation
1	$50,000	$20,000
2	$50,000	$20,000
3	$50,000	$20,000
4	$50,000	$20,000
5	$50,000	$20,000
6	$50,000	$20,000
7	$50,000	$20,000
8	$50,000	$20,000
9	$62,500	$20,000
10	$62,500	$20,000
11	$62,500	$20,000
12	$62,500	$20,000
13	$56,250	$20,000
14	$56,250	$20,000
15	$56,250	$20,000
16	$56,250	$20,000
17	$56,250	$20,000
18	$50,625	$20,000
19	$50,625	$20,000
20	$50,625	$20,000
*Net Profit here includes only cash inflows and outflows