Preview

Indian River Citrus (Financial management)

Good Essays
Open Document
Open Document
902 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Indian River Citrus (Financial management)
1.SHOULD THE $100,000 THAT WAS SPENT TO REHABILITATE THE PLANT BE INCLUDED IN THE ANALYSIS? EXPLAIN.

The $100,000 is a cost already occurred in the past and it was decided on a stand-alone basis. The plant would have been rehabilitated regardless of what would happen with the project, just to protect the company's property. This sunk cost should no way be included in the analysis. Of course the case would have been different if the plant hadn't been rehabilitated and its rehabilitation was decided now for the causes of the project

2. SUPPOSE ANOTHER CITRUS PRODUCER HAD EXPRESSED AN INTEREST IN LEASING THE LITE ORANGE JUICE PRODUCTION SITE FOR $25,000 A YEAR. IF THIS WERE TRUE (IN FACT, IT WAS NOT), HOW WOULD THAT INFORMATION BE INCORPORATED INTO THE ANALYSIS?

This information would cause only a slight change in the decision-making process. More specific we would not recommend realizing the plan if the average net profit per year (including the cost of capital) will be less than or equal to $25,000 which in fact can also be achieved with no risk at all. In order to recommend realizing the project we should either be certain that our profit will be higher than our opportunity cost ($25,000), or have no better alternative to invest the company's capital. Of course the above are valid only if there is no cannibalization effect to our sales from the other's producer's activities. In this case if we accept his proposal and we assume this agreement lasts 4 years and the rent is being paid at the end of each period we have a NPV of 79,246 , which is greater than the NPV of our project which is 23,720. So assuming equal life of the projects and no other side-effect we would prefer to rent the site.

Time 0

1st Year

2nd Year

3rd Year

4th Year

25,000

25,000

25,000

25,000

22,727

20,661

18,783

17,075

NPV: 79,247

PVIF(10%,1)( 25,000) = 22,727

PVIF(10%,2)( 25,000) = 20,661

PVIF(10%,3)( 25,000) = 18,783

PVIF(10%,4)( 25,000) = 17,075

NPV

You May Also Find These Documents Helpful

  • Good Essays

    Mat 540 Quiz

    • 649 Words
    • 3 Pages

    | Plant assets that had cost $18,000 61/2 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $4,000.4000…

    • 649 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Dallas Project

    • 563 Words
    • 2 Pages

    The developers spent $100 million on the land, $100 million on the recreation facilities, & $100 million on streets, parks, utilities, lots, & greenways. Based on these expenditures, I first allocated half of the $33 million purchase price ($16.5 million) to the recreation complex under the assumption that the $100 million recreation expenditures plus ½ of the $100 million land expenditures were related to the recreation complex. Next, I allocated $10,000 to each of the 500 finished lots ($5 million total), since that was the stated cost to complete each unfinished lot. This left $11.5 million of the $33 million purchase price to still be allocated ($33 - $16.5 - $5). I divided the remaining $11.5 million by the total number of lots to be sold (25,000, including finished & unfinished) to get a cost per lot of $460. I multiplied this amount by the number of lots that were sold each year, including to the finished lots that were sold in 1992. This allocation method resulted in a Net Present Value for the project, at 12%, of $124,290,018.…

    • 563 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Acc501 Week 3

    • 2323 Words
    • 10 Pages

    Prepare an incremental analysis assuming the released facilities can be used to produce $10,000 of net income in addition to the savings on the rental of storage space. What decision should now be made?…

    • 2323 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    Course Projectb Acct. 505

    • 636 Words
    • 3 Pages

    Part 1 Cash flows over the life of the project Item Annual cash savings Tax savings due to depreciation Total annual cash flow Before Tax Amount $72,540 32,000 Tax Effect After Tax Amount 0.65 $47,151 0.35 $11,200 $58,351…

    • 636 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Nt1310 Unit 2

    • 497 Words
    • 2 Pages

    7. If and then can be written in terms of p and q as (Hint: write…

    • 497 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Billy's Beats Inc.

    • 613 Words
    • 2 Pages

    The valuation specialist allocated the plant fair value of $865 million to each asset class based on the percentage of the seller’s total original cost applicable to each asset class. These percentages were provided by management of Little Drummer and relied on by the valuation specialist. The engagement team compared the percentage of total costs to a client prepared spreadsheet listing each asset class, asset ID, and percentage of total cost. No errors were noted and, accordingly, no further testing of the client-prepared spreadsheet was…

    • 613 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Trueblood Case

    • 723 Words
    • 3 Pages

    To test the useful lives of the operating assets, the engagement team asked management why the number of years assigned to the plant and equipment acquired differed from the years assigned to the assets which Billy’s had already owned. Management stated that the useful lives for the acquired assets were the amounts used by Little Drummer before the acquisition. The engagement team discussed the useful lives of the acquired property, plant, and equipment with the plant manager of Little Drummer. The plant manager stated that 30 years and 15 years for the plant and the equipment, respectively, were the useful lives used before the acquisition. This discussion was documented in the audit working papers. The valuation specialist allocated the plant fair value of $865 million to each asset class based on the percentage of the seller’s total original cost applicable to each asset class. These percentages were provided by management of Little Drummer and relied on by the valuation specialist. The engagement team compared the percentage of total costs to a client prepared spreadsheet listing each asset class, asset ID, and percentage of total cost. No errors were noted and, accordingly, no further…

    • 723 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Ac 556 Week 4 Assingment

    • 470 Words
    • 2 Pages

    Salvage value | $8,000 | | | | | | | Before tax annual cash inflows | $28,500 | | | | | | | Tax rate | 35% | | | | | | | Discount rate | 14% | | | | | | | | | | | | | | | | 1. Annual accounting income | | | | | | | | | Annual cash inflows | $28,500 | | | | | | | | Depreciation expense | 12,000 | | | | | | | | | | | | | | | | | EBT | 16,500 | | | | | | | | Income tax | 5,775 | | | | | | | | | | | | | | | | | Accounting Income | $10,725 | | | | | | | | | | | | | | | | | | | | | | | | | 2. Annual after tax cash inflows | | | | | | | | | Accounting income | $10,725 | | | | | | | | Add back depr.…

    • 470 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Finance Excercise 2

    • 316 Words
    • 2 Pages

    Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. If this film is distributed by VCI directly to large retailers, VCI’s investment in the project would be $150,000 and the total market for the film is estimated at 100,000 units. Other data are as follows:…

    • 316 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Pm 586 Week 4 Essay

    • 415 Words
    • 2 Pages

    1. What is your total budget for this project? Was the project within the budget as set forth by the board of directors?…

    • 415 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    1-b What type of cash flows and discount rate you are evaluating in this project? Is there any financial effect (i.e. leverage) involved? Why, or why not?…

    • 1337 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    The reputation of the resort will affect our payoffs in case we get a favourable result on the lease (or at least expect to), and development of the resort gives us an incremental +5.5M over simply selling it without development.…

    • 888 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Drink-at-Home, Inc

    • 793 Words
    • 4 Pages

    CASE 2: DRINK-AT-HOME, INC. Drink-At-Home, Inc. (DAH, Inc.), develops, processes, and markets mixes to be used in nonalcoholic cocktails and mixed drinks for home consumption. Mrs. Lee, who is in charge of research and development at DAH, Inc., this morning notified Mr. Dick Jones, the president, that exciting developments in the research and development section indicate that a new beverage, an instant pina colada, should be possible because of a new way to process and preserve coconut. Mrs. Lee is recommending a major program to develop the pina colada. She estimates that expenditure on the development may be as much as $100,000 and that as much as a year's work may be required. In the discussion with Mr. Jones, she indicated that she thought the possibility of her outstanding people successfully developing such a drink now that she'd done all the really important work was in the neighborhood of 90 percent. She also felt that the likelihood of a competing company developing a similar product in 12 months was 80 percent. Mr. Jones is strictly a bottom line guy and is concerned about the sales volume of such a beverage. Consequently, Mr. Jones talked to Mr. Besnette, his market research manager, whose specialty is new product evaluation, and was advised that a market existed for an instant pina colada, but was some-what dependent on acceptance by both grocery stores and retail liquor stores. Mr. Besnette also indicated that the sales reports indicate that other firms are considering a line of tropical drinks. If other firms should develop a competing beverage the market would, of course, be split among them. Mr. Jones pressed Mr. Besnette to make future sales estimates for various possibilities and to indicate the present (discounted value of future profits) value. Mr. Besnette provided Table 1. Mr. Besnette's figures did not include (1) cost of research and development, (2) cost of new production equipment, or (3) cost of introducing the pina colada. The cost of…

    • 793 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Waltz on the Danube

    • 4982 Words
    • 20 Pages

    on several factors including the viability of the market and the adequacy of the rents. Also the design selected could financially impact the returns on invested capital. The use of sensitivity analytics could be used to compare and contrast the different options and help differentiate between the levels of risk associated with each. Understanding and avoiding the risks associated with such a massive project in an emerging market will allow Philipp to proceed with the deal and help ensure he can convince the equity investors to back the deal.…

    • 4982 Words
    • 20 Pages
    Powerful Essays
  • Good Essays

    According to the case, Bernard’s value of original opportunity was $68.465K. Subtracted by the initial investment of $90K, the NPV was $21.535K. Thus, he planned to pass the opportunity. But his friends offered him alternatives which may generate positive outcomes to the project. With no options to either expand or buyout or both, if the viewer would be functional and website would be a winner, Bernard could make NPV= $366.44K by selling the business in six months. If the viewer were competitively functional in four months, but the website failed, Bernard would abandon the Web business and sell technology. He would add $25,000 of his money to turn the viewer into a shrink-wrapped software product. The selling price would be $450K and he would get a third of that. After being discounted to present, NPV would be $24.11K. He would have to sell the web business if the viewer was not functional and the website was successful. Bernard could get a third of the selling price of $300K which equaled $100K in six months. The NPV would be $1.29K. If both fail, eh would lose $90K in total. We’ve known…

    • 537 Words
    • 3 Pages
    Good Essays