Eradicator Food Prep, Inc., has invested $7 million to construct a food irradiation plant, which would destroy organisms that cause spoilage and disease, thus extending the shelf life of fresh foods and the distances over which they can be shipped. The plant can handle about 200,000 pounds of produce in an hour and will be operated for 3,600 hours a year. The net expected operating and maintenance costs (considering any income-tax effects) would be $4 million per year. The plant is expected to have a useful life of 15 years with a net salvage value of $700,000. The firm’s interest rate is 15%.
(a) If investors in the company want to recover the plant investment within six years of operation (rather than 15 years), what would be the equivalent after-tax annual revenues that must be generated?
(b) To generate the annual revenues determined in part (a), what minimum processing fee per pound should the company charge to its customers?