Calculate the payback period discounted payback period

Assignment Help Financial Accounting

Reference no: EM132821263

Question - Chicago Turkey is considering a new turkey from to service its western region stores. The stores currently require 650,000 turkeys per year, and they are purchased from various local turkey farms for an average price of $8 per bird. The managers believe that their new farm would lower the cost per bird to $7, while maintaining the average selling price of $12 per bird. However, due to the centralized structure of this operation, shipping expenses will increase to $1.25 per bird from the current $1.00. The firm will need to increase its inventory of live turkeys by $45,000. It will cost $200,000 to purchase the land and $350,000 to construct the buildings and purchase equipment. In addition, labor expense will rise by $250,000 per year. The buildings and equipment will be depreciated using the straight-line method over five years to a salvage value of $100,000. After five years, the company will sell the farm for $300,000 ($100,000 for the buildings and equipment, $200,000 for the land). The firm's marginal tax rate is 25%. Note that land is not depreciable.

a. Calculate the initial outlay, after-tax cash flows, and terminal cash flow for this project.

b. If the WACC is 12%, calculate the payback period discounted payback period, NPV, PI, IRR, and MIRR.

c. Management is uncertain about several of the variables in your analysis and have asked you to provide three different scenarios.

Scenario Labor Expense Salvage Value of Buildings Salvage Value of Land

Best Case $200,000 $150,000 $300,000

Expected Case 250,000 100,000 200,000

Worst Case 350,000 20,000 40,000

Create a scenario analysis showing the profitability measures for this investment using the information in the table above (note: The salvage value of the buildings is the actual forecasting salvage value, not that used for depreciation).

Reference no: EM132821263

Questions Cloud

Review on african american community in washington dc : Paper on Covid-19 infection peer review on African American community in Washington DC.

Explain type of research in chaos theory in healthcare : What type of research has been done in chaos theory in healthcare? What type of research have been done in generalized system theory in Healthcare ?

What influence does have on other elements : What is adjusted gross income and what influence does it have on other elements in the tax return such as the medical deduction, etc.

How can using and nurturing your interpersonal intelligence : As you are reading Chapter 4 of your course text, take note of the learning stages and theories that are explored. While thinking about how some of these stages

Calculate the payback period discounted payback period : The firm's marginal tax rate is 25%. If the WACC is 12%, calculate the payback period discounted payback period, NPV, PI, IRR, and MIRR

Define components of theories that align with your thoughts : You will be required to describe components of 2-3 theories that best align with your thoughts about teaching and learning and justify your responses.

Calculate the total present value of the cash flows : Calculate the total present value of the cash flows. A consultant estimates that outsourcing should result in cash savings of $10,700

What is the purpose of internal revenue code : Question - What is the purpose of Internal Revenue Code Section 482? What four methods of transfer pricing are acceptable under this section

How activities in process function as system : Explain what a process is and how activities in a process function as a system. Find an example of a process and identify the different activities involved.

User Account

All Pages