Justin is a manager at a firm that produces dressings, dips, sauces, and jams. One of the jams is strawberry and fig. Currently, his firm buys 20,000 pounds of strawberries from local farmers at a price of $1.00 per pound. Consider that one local farmer has offered to sell his farm to the firm for an immediate payment of $25,000. This farm will produce the 20,000 pounds of stawberries needed at the firm. 

Justin calculates that if the firm purchases the farm, it will cost $0.80 to produce a pound of strawberries. Also, assuming that the discount rate is 8 percent per year, if the firm purchases the farm it plans to retain ownership of the farm for 20 years and then sell it a price of $60,000 at the of 20 years. 

Assume that the firm pays its costs at the end of the year regardless of whether the firm purchases the farm or not. What is the net present value of purchasing the farm? (report your answer in dollars up to 2 decimal places)

Answer rating: 100% (QA)

To calculate the net present value NPV of purchasing the farm we can use the fo... View the full answer