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Henry's Farm (HF) intends to purchase $4 million worth of chickens for their egg-laying skills. HF will also purchase $10 million in equipment and machinery
Henry's Farm (HF) intends to purchase $4 million worth of chickens for their egg-laying skills. HF will also purchase $10 million in equipment and machinery to process the eggs. HF expects the chickens to be of efficient egg-bearing age for 4 years but will depreciate the assets over a three-year period. The expected cash flows (in millions) are shown below: uor The tax rate is 20% and the depreciation percentages for years 1 and 2 are 34% and 55% respectively. HF will borrow $8 million from the National Poultry Bank at a rate of 6.8% and obtain the rest of the capital from its current owners who require 11.9%. HF will donate $1 million of its OCF at the end of year 2 to the National Chicken Fund and hopes to sell all of its machinery and equipment at the end of year 4 for $4 million. 1. Compute the NPV of this project. 2. State and explain the decision rule for this project
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