Question

6. A farmer sows a certain crop. It costs $240,000 to buy the seed, prepare the ground, and sow the crop. In one year's time it will cost $93,200 to harvest the crop. If the crop will be worth $350,000, and the interest rate is 7%, what is the net present value (NPV) of this investment?

Answer 1

Answer:

$0

Step-by-step explanation:

Given that:

Preparation and sowing cost = $240,000

Cost of harvest after a year = $93,200

Worth of crop = $350,000

Interest rate (r) = 7% = 0.07

Net present value of Investment :

[(worth - Cost after 1 year) / (1 + r)] - initial investment cost

[(350,000 - 93,200) ÷ (1 + 0.07)] - 240,000

[256,800 / 1.07] - 240,000

$240,000 - $240,000

= $0