Answer:
$71,350
Explanation:
Here is the complete question:
A farmer has been given the opportunity to become a part owner in a local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $4,000 each year from the firm's profits. In addition, the farmer will receive a discount on fertilizer and he believes the discount will reduce his fertilizer costs by $2,000 per year. The farmer plans to retire in 25 years and thinks he can sell his equity in the fertilizer business for $50,000.
Calculate the market value of this investment if the market rate of return on comparable investments is 8%
The market value can be found by calculating the present value of the cash flows.
Present value can be calculated using a financial calculator:
Cash flow each year from year one to twenty four = $4000+$2000=$6000
Cash flow in year twenty five = $6000 + $50,000 = $56,000
I = 8%
Present value = $71,350
To find the NPV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you
