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18. Investing in a tractor 

A cotton farmer is considering investing in another tractor. 
The tractor costs $350, 000 and Will last for six years. 
After six years, the tractor becomes outdated and the tractor's manufacturer 
buys it back for $30, 000. The new tractor Will increase the farmer's 
profits by $70, 000 each year the fanner has the tractor (six years). 

a. If the farmer's discount rate (the rate used to discount future payoffs) is 6%, 
the net present value of this investment is: __________ rounded to the nearest whole dollar. 
You can assume the farmer is certain of the profits described above and the discount rate 
(there is no uncertainty). 

I.   $0
II.  $15,362
III. -$14,402
IV.  $10,000
V.   $13,654
VI.  $37,283
VII. -$3,381
VIII. $12,300


b. Should the farmer invest in the new tractor? 

I. Yes
II. No
III. Maybe, depending on the next best investment