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 $12.10 million. This investment will consist of $2.70 million for land and $9.40 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 $5.15 million, $2.44 million above book value. The farm is expected to produce revenue of $2.02 million each year, and annual cash flow from operations equals $1.91 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

NPV =

Year

Cost

Value of Future Savings

(at time of purchase)

0 $5,000 $7,000

1 4,650 7,000

2 4,300 7,000

3 3,950 7,000

4 3,600 7,000

5 3,250 7,000

Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accounting system?

Bell Mountain should purchase the system in year 2year 4year 3year 5year 1.

At $20 per bottle the Chip’s FCF is $_____ and at the new price Chip’s FCF is $______

*Capital Co. has a capital structure, based on current market values, that consists of 36 percent debt, 9 percent preferred stock, and 55 percent common stock. If the returns required by investors are 11 percent, 11 percent, and 14 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

After tax WACC = _________%