The Banda’s son has graduated with a Merit Degree in Agricultural Science from the Zambian Open University. They want to increase the size of their farm by leasing land off a retiring neighbouring farmer. The extra area is 200 hectare. The initial term of the lease will be 5 years. The fee for leasing is K 7,250 per hectare. They will have to purchase extra machinery for K 950,000. The salvage value for the machinery at the end of 5 years will be K 325,000. The increase in productivity of extra income per annum will be 10% Inflation will also be 10% for extra total extra costs per annum. The Banda’s want a discount rate of 20% on extra benefits per annum.

Crop		Soy beans	Maize	Sunflower	Cassava
Hectares		160	320	160	160
Yield/ha	tonnes	3.0	4.5	2.5	10.5
Price/tonne	K	5,000	3,500	5,500	2,500
Variable costs/ha.	K	6,500	6,000	5,500	5,000

The rotation will be Soy beans, Maize, Sunflower, Maize and Cassava for the cropping programme.

Calculate the net present value (NPV) and internal rate of return (IRR) for the expansion of the property.