Reference no: EM132460053

Question 1: Calculate the payback period for a dry-bean harvester that requires an initial cash outlay of $250,000. The after-tax net cash flows from this harvester will be $60,000 during the first year; $50,000 for each of the second, third, and fourth years; and $30,000 for the fifth, sixth, seventh, and eighth years. In year eight, the harvester can be sold for an after-tax salvage value of $40,000.

Question 2: A farm building costs $54,000 to build today and will earn after-tax net cash flows of $16,000 per year for five years. There is no salvage value on this building at the end of the five-year life, and the farmer's cost of capital is 9%.

a. What is its net present value?

b. What is the benefit-cost ratio of this building at a cost of capital of 9%?

Question 3: Your father has inherited lots of money, and he has always wanted to own a farm. He is considering the purchase of several farm properties. Additionally, your father expects to sell the farm and retire after owning the farm for a full fifteen years. One of the farms he is looking at has a purchase price of $800 after-tax development costs of $40,000 per year for the first five ye and after-tax net cash inflows of $35,000 per year for years six through fifteen. To determine the selling price of the farm at the end of the fifteenth year, assume that the farm will increase in value at a rate of to per year. Using a 7% cost of capital, calculate the net present value and benefit-cost ratio of this farm investment. Show your work. Explain whether or not and why you should keep this farm among your investment alternatives.