Question

In: Accounting

You are considering the purchase of 10 acres to plant an apple orchard. The land is...

You are considering the purchase of 10 acres to plant an apple orchard. The land is priced at $17,500/acre and it will cost $65,000 to plant the trees and install the irrigation system. Based on your research, you won't be producing enough apples to sell until year 5. From then on you estimate your net returns will be $45,000 a year. If you plan on operating the orchard for 15 years, what is your NPV? Assume that the land appreciates at 2.75%/year and you sell it after 15 years. Also assume that you have required rate of return of 10.95%.


Match the ratio with the category that it measures.
Current Ratio
Debt to Asset Ratio
Operating Expense Ratio
Operating Profit Margin

Solutions

Expert Solution

Outflow

Land

         175,000

Plantation of tress

           65,000

         240,000

NPV

Year

Inflow

Disc Factor

DCF

1

                    -  

          0.90

                    -  

2

                    -   

          0.81

                    -  

3

                    -  

          0.73

                    -  

4

                    -  

          0.66

                    -  

5

                    -  

          0.59

                    -  

6

     45,000.0

          0.54

       24,124.0

7

       45,000.0

          0.48

       21,743.1

8

       45,000.0

          0.44

       19,597.2

9

       45,000.0

          0.39

       17,663.1

10

       45,000.0

          0.35

       15,919.9

11

       45,000.0

          0.32

       14,348.7

12

       45,000.0

          0.29

       12,932.6

13

       45,000.0

          0.26

       11,656.2

14

       45,000.0

          0.23

       10,505.8

15

       45,000.0

         0.21

          9,469.0

15

       262,884.0

          0.21

          55,316

213,276
*Land (compounded annually at 2.75% per annum, for 15 years)

It will not be profitable to go ahead for the proposal

ekkarill92 answered 2 years ago
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