Explore BrainMass

Explore BrainMass

    Lemon juice Project

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The lemon juice would be produced in an unused building adjacent to Allied's Fort Myers plant; Allied owns the building, which i 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%, 45%, 15%, and 7%.
    The project is expected to operate for 4 years, at which 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 slavage value of $25,000.
    Unit sales are expected to total 100,000 cans per year, and the expected sales price is $2.00 per can. Cash operating costs for the project (total operating costs less depreciation) are expected to total 60% of dollar sales. Allied's tax rate is 40%, and its weighted average cost of capital is 10%. Tentaviley the lemon juice is assumed to be of equal risk to Allied's other risk.

    © BrainMass Inc. brainmass.com June 3, 2020, 7:01 pm ad1c9bdddf
    https://brainmass.com/business/modified-internal-rate-of-return/lemon-juice-project-83815

    Attachments

    Solution Preview

    The lemon juice would be produced in an unused building adjacent to Allied's Fort Myers plant; Allied owns the building, which i 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 ...

    Solution Summary

    This provides the steps to calculate evaluate the lemon juice project

    $2.19

    ADVERTISEMENT