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The Company is considering a new turkey farm to service its western region stores. Currently the stores require 900,000 turkeys per year at a cost of $10 per bird. Managers believe that their new farm will lower the cost per bird to $7.50 while maintaining the average selling price of $13 per bird. Shipping expenses will increase from $1 to $1.50 per bird. Inventory will need to increase by $150,000 live turkeys. Additionally labor cost will increase $500,000 annually. It will cost $2,000,000 to purchase land and $1,500,000 for constructing building and equipment. Building and equipment are depreciated on the straight line method. After 7 years, the company expects to sell the land for $1,500,000 and the building and equipment at their salvage value of $600,000. The companies marginal tex rate is 40%

Using Excel

1. Calculate the initial outlay (IO) annual after tax cash flow for each year (ACF) and terminal cash flows (TCF) for this project.

2. If the WACC is 12% answer the following questions:

- 3.Calculate the payback period

- 4. Calculate the discounted payback period.

- 5 Calculate the NPV

-6 Calculate the PI

-7. Calculate ethe IRR

-8 Calculate the MIRR

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Bunny Greenfelder
Bunny GreenfelderLv2
28 Sep 2019

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Related questions

Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,300 per year for 15 years. The cost of purchasing this investment is $9,200. You have an alternative investment opportunity, of equal risk, that will yield 9% per year. What is the NPV that makes you indifferent between the two options?

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10. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:

2011

2010

2009

2008

2007

EPS

$1.10

$1.05

$1.00

$0.95

$0.90

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11. The following are the company sales from 2000-2009

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$230

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3

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6

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Fit an exponential trend curve to the data and

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12. THE FINAL PROBLEM IS A CALCULATION PROBLEM with multiple parts

Frozen Turkeys Scenario

Cost of Land $ 210,000

Cost of Buildings & Equipment $ 325,000

MACRS Class 20

Life of Project (Years) 5

Terminal Value of Land $ 315,000

Terminal Value of Buildings & Equipment $ 170,000

First year sales (pounds) 250,000

Price per Pound $3.40

Unit Sales Growth Rate 7.5%

Variable Costs as % of Sales 65%

Fixed Costs 72,000

Tax Rate 33%

WACC 10.5%

a. Prepare a statement of annual cash flows for years 0 through 5. Cash flows in year 0 are your expenses for building and land.

Sales growth is based on the annual growth rate in units.

Assume no changes in fixed or variable costs.

Depreciate the project cost for 5 years, with the cash flow in year 5 to include the terminal cash flow of ending the investment.

b. Calculate the NPV,

c. profitability index,

d. IRR,

e. MIRR,

f. payback and

g. discounted payback of the cash flows

h Using scenario manager find best case, worst case, base case of NPV based on sales in pounds, price per pound, and variable cost percent. Make sure to include scenario summary.

Home Furnishings Express is expanding its product offerings to reach a wider range of customers. To do this, they must expand the showroom and buy new equipment.

The expansion project includes increasing the floor inventory by $430 and increasing its debt to suppliers by 70 percent of floor inventory. The company will spend $450 for a building contractor to expand the size of its showroom and $30 for new equipment. As part of the expansion plan, the company will be offering credit to its customers and thus expects accounts receivable to rise by $90. The new product will be sold for 4 years. The showroom and new equipment is being depreciated using the 5-year MACRS category (20, 32, 19, 12, 11, 6%). The new product should have annual sales of $200, $250, $200, $150, until the project ends in 4 years. The new product will reduce annual sales of existing products by $10, until the product ends in 4 years. The cost of goods sold is 50% for both new and old products. Whiles sales will adjust after the first year, the firm believes that working capital will only affect initial cash flows and that working capital will return to normal levels after the project ends.

Over the past year, Home Furnishings Express has spent $17 studying the market for the new product. The accountants estimate that store Overhead will increase due to the addition of new back office personnel. This overhead will equal 10% of increased sales. A sales commission to our sales personnel is 8% of sales. Annual Fixed costs will increase by $7. If we did not sell the new product, we could rent the space to a vendor for $30 per year for the four years. Additionally, our annual property taxes will increase by $6 due to the expansion. After 4 years, we plan to sell the company. We estimate that we will receive an extra $100 for the store due to the extra sale’s space and equipment. The firm’s tax rate is 30%. The cost of capital is 12%.

What is the Initial Cash flow, the year 2 operating cash flows, and the the terminal cash flows? Show your work with labels for partial credit.

Question 24 options:

Year 0 Cash Flows (3 points) = Year 2 Operating Cash Flows (4 points) = Terminal Cash Flows (I only want terminal cash flows, not total cash flows for year 4, 3 points) =

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B) OCFs in years 1-7?

C) Terminal year cash flows in year 8—separated into operating and non-operating after-tax flows?

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