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 1 year ago
Next > < Previous

Related Solutions

A principal told his agent to sell 3 acres of land in an orchard for $...
A principal told his agent to sell 3 acres of land in an orchard for $ 6 million, in return for a 1 percent of the sale proceeds as commission. The agent was aware that the price of the land was on the rise and it was well sought after by Singaporean investors, but he did not disclose it to the principal. The agent then told the principal he found a first buyer who was willing to buy for $...
Mr. Agirich of Aggie Farms is considering the purchase of 100 acres of prime ranch land...
Mr. Agirich of Aggie Farms is considering the purchase of 100 acres of prime ranch land that is adjacent the ranch he now owns. Mr. Agirich can operate the additional 100 acres with present labor, machinery and breeding livestock. The land is selling for $400 per acre.   Mr. Agirich believes that the operating receipts per acre of land per year will $450 and operating expenses will be $420 in present dollars. Mr. Agirich expects that the inflation rate will be...
Mr. Agirich of Aggie Farms is considering the purchase of 100 acres of prime ranch land...
Mr. Agirich of Aggie Farms is considering the purchase of 100 acres of prime ranch land that is adjacent the ranch he now owns. Mr. Agirich can operate the additional 100 acres with present labor, machinery and breeding livestock. The land is selling for $400 per acre.   Mr. Agirich believes that the operating receipts per acre of land per year will $450 and operating expenses will be $420 in present dollars. Mr. Agirich expects that the inflation rate will be...
A beekeeper and a farmer with a 10 acre apple orchard are neighbors. This is convenient...
A beekeeper and a farmer with a 10 acre apple orchard are neighbors. This is convenient for the orchard owner since the bees pollinate the apple trees. One beehive can pollinate one acre of orchards. If the orchard owner had to buy pollination services on the market, it would cost $10 per acre. The beekeeper has total cost of TC = H2 + 10H and marginal costs of MC = 10 + 2H, where H is the number of hives....
Ida is a freelance artist. She purchased 10 acres of land in 2013. The land was...
Ida is a freelance artist. She purchased 10 acres of land in 2013. The land was held by Ida as investment property. On July 1, 2018, the land was condemned by the county government to build a new courthouse and jail facility. The county awarded Ida $550,000 for the condemnation of the land.   Ida used the full amount of the proceeds to purchase a building that she will use as a production studio for her artwork. The reinvestment occurred within...
You are a manager of an apple orchard. For harvesting apple, you need to hire some workers.
You are a manager of an apple orchard. For harvesting apple, you need to hire some workers. Worker is the variable factor and per worker wage is $40/day. Fixed cost of the orchard is $10 per day. You have been given the following information in relation to your apple harvesting: Workers per day Harvesting kg per day 0 0 1 100 2 275 3 460 4 620 5 755 6 860 7 920 8 960 a) Calculate marginal cost, average...
Suppose a farm couple has the option to purchase 400 acres of land. Assume they are...
Suppose a farm couple has the option to purchase 400 acres of land. Assume they are able to purchase the land for $4,000/acre. Assume a 25% down payment with the balance financed by a 30 year loan with a 7% interest rate and equal annual principal payments. What will their interest change in year 2 be? a. $40,000 b. $84,000 c. $78,400 d. $81,200
1.In July, Shopper's Paradise contracts with Annie's Apple Orchard in Washington State for the purchase of...
1.In July, Shopper's Paradise contracts with Annie's Apple Orchard in Washington State for the purchase of Braeburn apples to be delivered on December 1. An early severe frost in November destroys the apples. Annie's can buy the apples from another orchard, but they would be expensive and Annie's profit would be about 2% versus the normal 15%. Annie's decides the 2% is not worth the hassle and does not deliver any apples to Shopper's. Which result is most likely if...
A farmer has 360 acres of land on which to plant corn and wheat. She has...
A farmer has 360 acres of land on which to plant corn and wheat. She has $24,000 in resources to use for planting and tending the fields and storage facility sufficient to hold 18,000 bushels of the grain (in any combination). From past experience, she knows that it costs $120 / acre to grow corn and $60 / acre to grow wheat; also, the yield for the grain is 100 bushels / acre for corn and 40 bushels / acre...
7. John and Mary Landlord want to purchase 200 acres of farm land valued at $2,000...
7. John and Mary Landlord want to purchase 200 acres of farm land valued at $2,000 per acre. Their lender requires a 20% down payment. Assume twenty annual payments. The interest rate is 7.0%. [USPV.07,20=10.5940] a. Calculate the schedule of interest and principal payment over the life of the loan using the constant payment method and the constant payment on principal method. Show your answer using a table. If you choose to use an excel spreadsheet then you need to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT