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Type of paper: Coursework
Subject area: Finance
Academic level: High school, College, Bachelor
Style: APA
Size: 70.5 kB
Word count:
1466 words/6 pages
Mark awarded:  
Author: Gussie Browning
Date submitted: 2008-11-21 20:18:06
Rating/Votes count:
3.00 / 2
 
See alike papers
 
 
Tags: state, cash, personal, operating, finance, room, Financial Management, SCHOOL, Corporate Financial Management, Human Consult, Finance Cash
RUNNING HEAD : CAPITAL BUDGETING AND CASH FLOW ESTIMATION : ALLIED FOOD
PRODUCTS
ALLIED FOOD PRODUCTS
CAPITAL BUDGETING AND CASH FLOW ESTIMATION
[The name of the writer appears here]
[The name of the institution appears here]
Allied Food Products
Capital Budgeting and Cash Flow Estimation
ALLIED FOOD CASE :
AFTER SEEING SNAPPLE 'S SUCCESS WITH NONCOLA SOFT DRINKS AND LEARNING OF
COKE 'S
AND PEPSI 'S INTEREST , ALLIED FOOD PRODUCTS HAS DECIDED TO CONSIDER AN
EXPANSION
OF ITS OWN IN THE FRUIT JUICE BUSINESS . THE PRODUCT BEING CONSIDERED IS
FRESH
LEMON JUICE . ASSUME THAT YOU WERE RECENTLY HIRED AS ASSISTANT TO THE
DIRECTOR
OF CAPITAL BUDGETING AND YOU MUST EVALUATE THE NEW PROJECT .
THE LEMON JUICE WOULD BE PRODUCED IN AN UNUSED BUILDING ADJACENT TO
ALLIED 'S FORT MYERS PLANT ALLIED OWNS THE BUILDING , WHICH IS FULLY
DEPRECIATED . THE REQUIRED EQUIPMENT WOULD COST 200 ,000 , PLUS AN
ADDITIONAL 40 ,000 FOR SHIPPING AND INSTALLATION . IN ADDITION ,
INVENTORIES WOULD RISE BY 25 ,000 , WHILE ACCOUNTS PAYABLE WOULD GO UP BY 5 ,000 . ALL OF THESE COSTS WOULD BE INCURRED AT t 0 . BY A SPECIAL
RULING , THE MACHINERY COULD BE DEPRECIATED UNDER THE MACRS SYSTEM AS
3-YEAR PROPERTY . THE APPLICABLE DEPRECIATION RATES ARE 33 PERCENT , 45
PERCENT , 15 PERCENT , AND 7 PERCENT .
THE PROJECT IS EXPECTED TO OPERATE FOR 4 YEARS , AT WHICH TIME IT WILL BE
TERMINATED . THE CASH INFLOWS ARE ASSUMED TO BEGIN 1 YEAR AFTER THE
PROJECT IS UNDERTAKEN , OR AT t 1 , AND TO CONTINUE OUT TO t 4 . AT THE
END OF THE PROJECT 'S LIFE (t 4 , THE EQUIPMENT IS EXPECTED TO HAVE A
SALVAGE VALUE OF 25 ,000 .
UNIT SALES ARE EXPECTED TO SALES PRICE IS 2 .00 PER CAN . CASH OPERATING COSTS FOR THE PROJECT (PERCENT OF DOLLAR SALES . ALLIED 'S TAX RATE IS 40 PERCENT , AND ITS
WEIGHTED AVERAGE COST OF CAPITAL IS 10 PERCENT . TENTATIVELY , THE LEMON
JUICE PROJECT IS ASSUMED TO BE OF EQUAL RISK TO ALLIED 'S OTHER ASSETS .
YOU HAVE BEEN ASKED TO EVALUATE THE PROJECT AND TO MAKE A RECOMMENDATION
AS TO WHETHER IT SHOULD BE ACCEPTED OR REJECTED . TO GUIDE YOU IN YOUR
ANALYSIS , YOUR BOSS GAVE YOU THE FOLLOWING SET OF QUESTIONS .
TABLE IC11-1 . ALLIED 'S LEMON JUICE PROJECT (
END OF YEAR : 0 1 2 3 4
I . INVESTMENT OUTLAY
EQUIPMENT COST
INSTALLATION
INCREASE IN INVENTORY
INCREASE IN ACCOUNTS PAYABLE II . OPERATING CASH FLOWS
UNIT SALES (THOUSANDS ) 100
PRICE /UNIT 2 .00 2 .00 OPERATING COSTS ,
EXCLUDING DEPRECIATION 120 .0
DEPRECIATION 36 .0 16 .8 OPERATING INCOME BEFORE TAXES 44 .0
TAXES ON OPERATING INCOME 0 .3 25 .3
OPERATING INCOME AFTER TAXES 26 .4
DEPRECIATION 79 .2 36 .0
OPERATING CASH FLOW 0 .0 79 .7 54 .7
III . TERMINAL YEAR CASH FLOWS
RETURN OF NET OPERATING WORKING CAPITAL
SALVAGE VALUE
TAX ON SALVAGE VALUE IV . NET CASH FLOWS
NET CASH FLOW ADVANCE \l1 260 .0 89 .7
V . RESULTS
NPV
IRR
MIRR
PAYBACK
A . DRAW A TIME LINE THAT SHOWS WHEN THE NET CASH INFLOWS AND...
 

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