Question
Pharoah Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05
Pharoah Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.05 million. This investment will consist of $2.90 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.30 million, which is $2.40 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $2.00 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.)
NPV | $enter the NPV in dollars rounded to 2 decimal places |
The project should be | select an option acceptedrejected | . |
Cullumber, Inc., has just set up a formal line of credit of $10 million with First Community Commercial Bank. The line of credit is good for up to five years. The bank will charge Cullumber an interest rate of 6.15 percent on any amount borrowed, and the firm will pay an annual fee of 54 basis points on the unused balance. The firm borrowed $7.5 million on the first day the credit line became available. What is the effective interest rate on this line of credit? (Round answer to 2 decimal places, e.g. 12.25%.)
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