Question
Champ Farm Ltd. is considering the purchase of a combine harvester to harvest and sell wheat on one of its many properties. The combine harvester
Champ Farm Ltd. is considering the purchase of a combine harvester to harvest and sell wheat on one of its many properties. The combine harvester is expected to have a 10-year life. Other information pertaining to this potential investment follows:
Cost of the combine harvester $439,738
working capital investment required at the beginning of the harvesters life $25,032
Annual cash receipts from the harvester $231,297
Annual cash disbursements from the harvester $150,343
Salvage value of harvester in 10 years $35,179
Champ Farm requires a minimum return on investment of: 10%
At the end of the harvester's life, the working capital investment would no longer be required.
Required: Calculate the net present value of harvesting wheat with the combine harvestor. Indicate whether Champ should undertake the investment, and why. Working capital investment required at the beginning of the harvester's
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