Using NPV, evaluate an investment in a hog farrow-to-finish enterprise. It is a small, capital-intensive system that utilizes the latest technology in feed distribution, waste disposal, and animal care. The system has a capacity of 280 litters per year with 140 sows farrowing every six months. The litters can be sold for $455 each at a cost of $380. Assume a cash purchase of the buildings, equipment, and livestock using the investors equity capital. Given the above and following information, fill out the following table with your calculations.

Initial Investment

$100,000 Buildings $ 40,000 Equipment $ 10,080 Livestock

The breeding livestock fall in the three-year class for tax depreciation purposes while the buildings and equipment are in the eight-year class. Depreciation is calculated using straight line depreciation methods and assuming no salvage value. The government has offered an incentive to encourage investment in buildings and equipment. Depreciation on buildings and equipment can be accelerated to 12 their typical useful life.

Planning Horizon

The investor uses a 10-year planning horizon.

Terminal Value

The terminal value in year 10 is projected to be $30,000 and is fully taxable.

Required rate-of-return

The investor stipulates a required rate-of-return of 9 percent.

Net Cash Flows

Net cash flows to the investor are determined by deducting projected operating expenses and income tax obligations from projected operating receipts in each year of the planning period.

Remember that depreciation is a NONCASH expense that is used for calculating income taxes only.

The initial investment is a negative cash outflow at present.

The terminal value is considered part of the cash flow in the final period.

In response to inflation, both the operating receipts and expenses are projected to increase at 3 percent per year. For simplicity, an income tax rate of 20 percent is assumed.

Item	Year
	0	1	2	3	4	5	6	7	8	9	10
Operating Receipts
Terminal Value
Total Cash Inflow
Initial Outlay
Operating Expenses
Depreciation
Taxable Income
Income Taxes
Total Cash Outflow
Net Cash Flow
PART C: Net Present Value