Frozen Turkeys Scenario Cost of Land $ 200,000 Cost of Buildings & Equipment $ 3
ID: 2654564 • Letter: F
Question
Frozen Turkeys Scenario
Cost of Land $ 200,000
Cost of Buildings & Equipment $ 350,000
MACRS Class 20
Life of Project (Years) 5
Terminal Value of Land $ 300,000
Terminal Value of Buildings & Equipment $ 175,000
First year sales (pounds) 250,000
Price per Pound $3.50
Unit Sales Growth Rate 7.0%
Variable Costs as % of Sales 62%
Fixed Costs 75,000
Tax Rate 35%
WACC 10.0%
a. Prepare a statement of annual cash flows for years 0 through 5. Cash flows in year 0 are your expenses for building and land.
Sales growth is based on the annual growth rate in units.
Assume no changes in fixed or variable costs.
Depreciate the project cost for 5 years, with the cash flow in year 5 to include the terminal cash flow of ending the investment.
b. Calculate the NPV,
c. profitability index,
d. IRR,
e. MIRR,
f. payback and
g. discounted payback of the cash flows
h Using scenario manager find best case, worst case, base case of NPV based on sales in pounds, price per pound, and variable cost percent. Make sure to include scenario summary.
Explanation / Answer
Depreciation = (350000-175000)/5 = 35000
Tax saving on dep = 35000*0.35 = 12250
Calculation of taxable income per year
Operating Income
(Taxable income - tax)
a. Annual Cash flows statement
b. NPV
c. Profitability index = PV of Cash Inflows / PV of Cash Outflows
= 930078/550000 = 1.69
d. NPV @ 30%
IRR = Lower rate + Lower rate NPV / (Lower rate NPV - HIgher rate NPV)
= 10 + 380078/[380078-(-118625)] = 10.76%
Year 1 2 3 4 5 Sales($) 875000 936250 1001788 1071913 1146947 - Variable Cost -542500 -580475 -621109 -664586 -711107 Fixed Cost -75000 -75000 -75000 -75000 -75000 Depreciation -35000 -35000 -35000 -35000 -35000 Taxable Income 222500 245775 270679 243327 325840Operating Income
(Taxable income - tax)
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