Upland Orchard has acquired 70 acres of land and is deciding on what to plant.  Upland currently operates a 100-acre apple orchard and may use this additional 70-acre plot for apple, but they are also considering branching out (pun intended) and investing in peach rootstock.

 

Upland’s Orchard has an ROA of 8.50% (discount rate).  

(1) Peach Rootstock  

Initial investment: $96,000

Will generate a cash inflow of $9,500 per year for 20 years.  This investment has a salvage value of $35,000. 

(2) Apple rootstock  

Initial investment: $109,000

Cash inflows are $14,500 in year 1 and go down by $500 per year. Apple has a salvage value of $3000.

Calculate the NPV and IRR for each investment. 

Which investment should they make? Why?