Use the Following Information to Answer the Question(s)below

question 37

Multiple Choice

Use the following information to answer the question(s) below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 35% tax rate and has a cost of capital of 10%.
-Assuming that Casa Grande Farms depreciates these tractors using MACRS depreciation method for three-year property starting immediately,then the NPV of buying the tractors is closest to:

• A)20,785
• B)36,225
• C)81,715
• D)513,235
• E)560,785

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Definitions:

Hedger

An individual or entity that enters into contracts such as futures or options to offset the risk of price movements in the commodities or securities markets.

Prices Change

The fluctuation in the market price of goods, services, or securities over time due to various economic factors.

Put Option

A put option is a financial contract giving the holder the right, but not the obligation, to sell a specific amount of an asset at a predetermined price within a specific time frame.

Obligation

A duty or commitment to do something or to pay a debt, often legally binding.