29 Jun Question 1. Briarcrest Condimen
Question
1. Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices.
The process requires new machinery that would cost $2,142,067. have a life of five years, and would
produce the cash flows shown in the following table.
Year
Cash Flow
1
$630,626
2
-247,417
3
826,369
4
796,728
5
834,219
What is the NPV if the discount rate is 16.83 percent? (Enter negative amounts using negative sign e.g.
-45.25. Round answer to 2 decimal places, e.g. 15.25.)
NPV is =
2. 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 $11.90 million. This investment will consist of $2.30 million
for land and $9.60 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 $5.00 million, $2.14 million above book value. The
farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations
equals $1.85 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent.
Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal
places, e.g. 15.25.)
NPV is =
The project should be accepted or rejected?
3. Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end
electronic system. While the new accounting system would save the company money, the cost of the system
continues to decline. The Bell Mountain’s opportunity cost of capital is 11.0 percent, and the costs and
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