50ha Of Asparagus Case Study
This investment analysis has been conducted for Tendertips for the possibility of planning 50ha of asparagus on a lease block. The project will be evaluated as to it feasibility and a recommendation will be provided.
The discount rate of a project portrays the riskiness’s of the investment and takes into account the time value of money. This means that the rate reflects the return that is required for the project to be an acceptable option for investment. For this projects the discount rate is unknown and therefore research has been undertaken to identify an appropriate discount rate. The chosen rate is 9.1% based on assumptions below:
With any investment there is going to be a risk-free interest rate. This rate represents …show more content…
The cash flow has been prepared over the 15-year lifespan of the crop with the capital outlay occurring in year 0 shown in the appendix. Currently on the land, 200 yearling heifers and 200 claves are grazed generating $156,000 in cash inflows each year. The pre-tax and financing net cash flow from grazing is $123,725 and the post-tax and financing net cash flow is $89,082. These figures are then used to identify the incremental cash flows that the asparagus project would generate. From this the net present values and the internal rates of return can be calculated for both pre and post-tax and financing for the asparagus project, based on the incremental values. This then provides an indication into weather the asparagus project is worth investment in compression to the current grazing …show more content…
The calculation accounts for all future cash flows for the projects 15 years and then discounts them by the 9.1% discount rate for the project. The figures that are discounted are the incremental cash flows, which are the differences between the current grazing operation and the potential asparagus project for each given year. This then gives an indication to the value the asparagus project will add compared to the grazing operation.
− The expected NPV for the project pre taxation and finance is $546,576 and post-tax and financing $456,329. Based on this given the assumptions, it shows the required rate of return is being met and the farm stands to gain a positive income from investing in the asparagus. Thus, based on this we would accept the