Since ABC corporation is producing at full capacity, Amanda has decided to have Han examine the feasibility of a new manufacturing plant. This expansion would represent a major capital outlay for the company. A preliminary analysis of the project has been conducted at a cost of $1.6 million. This analysis determined that the new plant will require an immediate outlay of $54 million and an additional outlay of $31 million in one year. The company has received a special tax dispensation that will allow the building and equipment to be depreciated on a 20-year MACRS schedule.
Because of the time necessary to build the new plant, no sales will be possible for the next year. Two years from now, the company will have partial-year sales of $17 million. Sales in the following four years will be $28 million, $37 million, $40 million, and $43 million. Because the new plant will be more efficient than LSUS corporationâs current manufacturing facilities, variable costs are expected to be 65 percent of sales, and fixed costs will be $2.4 million per year. The new plant will also require networking capital amounting to 8 percent of sales for the next year.
Han realizes that sales from the new plant will continue into the indefinite future. Because of this, he believes the cash flows after Year 5 will continue to grow at 2.5 percent indefinitely. The companyâs tax rate is 40 percent and the required return is 12 percent.
1) Discuss and Analyze the financial viability of the new plant and calculate the profitability index, NPV, and IRR. Break down/clearly show calculation questions.
Sample Solution
Sensory Analysis: Processed cheese samples were evaluated by a panel of 15 selected assessors according to the method described by Macku22. Samples were coded and served at the room temperature. Five-point hedonic scale was used for assessment of cheese appearance (color), rigidity, spreadability, flavor and total acceptance. Data Analysis: All the formulations were prepared in triplicate. The fortified data were analyzed using spss statistical software (IBM spss statistics 22) by one-way analysis of variance. The level of significance (p) was set at 0.05. Duncan`s HST test at 5% significance level was used as the multiple comparison test on all main effect means. RESULTS AND DISCUSSION Chemical Analysis: processed cheese had protein content of 12%, fat content of 23% and moisture content of 56.67%. Samples did not show any significant differences in, protein, fat and moisture and these properties did not change significantly (P > 0.05) during storage (results are not shown). This could be because of low levels of powders added to the samples and did not make significant difference in these properties. In the case of pH, there were significant difference between control and fortified cheeses. Bin Shan et al.6 reported that herbal extracts with high phenolic contents in cheese samples, prevented the increasing of pH, during storage. Results showed that pH has been decreased by increasing asparagus and tomato level in cheese formulation and it was decreased during storage. However, pH changes in cheeses fortified with tomato powder were as control sample during storage (Tables 1 and 2). Lycopene contents of samples increased with the increasing of tomato powder. Lycopene content decreased during storage which was severe at the beginning of storage, then followed by slow lycopene degradation (Table 3). Lycopene is a carotenoid found in fruits and vegetables which is responsible for the redness of tomato and tomato based products. Lycopene can act as an antioxidant and has many positive effects on prevention of many diseases25. Therefore, cheeses fortified with tomato powders can be as functional and healthier food products in our daily diet.>
Sensory Analysis: Processed cheese samples were evaluated by a panel of 15 selected assessors according to the method described by Macku22. Samples were coded and served at the room temperature. Five-point hedonic scale was used for assessment of cheese appearance (color), rigidity, spreadability, flavor and total acceptance. Data Analysis: All the formulations were prepared in triplicate. The fortified data were analyzed using spss statistical software (IBM spss statistics 22) by one-way analysis of variance. The level of significance (p) was set at 0.05. Duncan`s HST test at 5% significance level was used as the multiple comparison test on all main effect means. RESULTS AND DISCUSSION Chemical Analysis: processed cheese had protein content of 12%, fat content of 23% and moisture content of 56.67%. Samples did not show any significant differences in, protein, fat and moisture and these properties did not change significantly (P > 0.05) during storage (results are not shown). This could be because of low levels of powders added to the samples and did not make significant difference in these properties. In the case of pH, there were significant difference between control and fortified cheeses. Bin Shan et al.6 reported that herbal extracts with high phenolic contents in cheese samples, prevented the increasing of pH, during storage. Results showed that pH has been decreased by increasing asparagus and tomato level in cheese formulation and it was decreased during storage. However, pH changes in cheeses fortified with tomato powder were as control sample during storage (Tables 1 and 2). Lycopene contents of samples increased with the increasing of tomato powder. Lycopene content decreased during storage which was severe at the beginning of storage, then followed by slow lycopene degradation (Table 3). Lycopene is a carotenoid found in fruits and vegetables which is responsible for the redness of tomato and tomato based products. Lycopene can act as an antioxidant and has many positive effects on prevention of many diseases25. Therefore, cheeses fortified with tomato powders can be as functional and healthier food products in our daily diet.>
