Archer Daniels Midland
Company is considering buying a new farm that it plans to operate for 10 years.
The farm will require an initial investment of $12.20 million. This investment
will consist of $2.30 million for land and $9.90 million for trucks and other
equipment. The land, all trucks, and all other equipment is expected to be sold
at the end of 10 years at a price of $5.08 million, $2.00 million above book
value. The farm is expected to produce revenue of $2.10 million each year, and
annual cash flow from operations equals $1.96 million. The marginal tax rate is
35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV
of this investment. Should it be accepted or rejected?