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Q 1 . Problem: Modernized Farming Equipment Analysis [ 6 Marks ] The Green Valley Agricultural Co - op is considering investing in a new
Q Problem: Modernized Farming Equipment Analysis Marks
The Green Valley Agricultural Coop is considering investing in a new automated irrigation system to
improve efficiency on their farms. The system is priced at $ The automation will not increase
crop yields or sales revenues, but it is expected to decrease water usage and labor costs significantly.
The system requires annual maintenance to function correctly. The system is expected to be functional
for eight years, after which it will have no salvage value. The following table summarizes the
anticipated annual savings in water and labor costs and the annual maintenance cost over eight years.
Table : Cost and Savings Summary Table
The costs represent the annual maintenance required, while the savings are from reduced water
consumption and labor. The net cash flow is the savings minus the costs each year.
Tasks:
Calculate the Net Present Value NPV of the investment using a discount rate of
Mark
Determine the Internal Rate of Return IRR for the project. Mark
Perform a sensitivity analysis to assess how changes in the discount rate affect the NPV
Mark
Provide a recommendation based on the NPV and IRR whether Green Valley Agricultural
Coop should proceed with the investment in the new irrigation system. Mark
PLEASE PROVIDE THE FORMULAS AND THE STEPS
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