(70 points total) Husker Farms plans to build three new broiler houses on their farm. There are 20,000 broilers in each flock (house) and 6.75 flocks per year are expected. Husker Farms also expects a 4% death loss. Each broiler is expected to weigh 4.2lb. and sell for 0.05 cents per pound while direct costs per broiler are estimated to be 0.15 cents. Husker Farms will invest $30,000 in land which is not depreciable, spend $10,000 on equipment with a three-year depreciable life (straight line depreciation), and $20,000 per house with a ten-year depreciable life (straight line depreciation). Husker Farms estimates that the salvage value of the investment (net of all capital gains taxes) at the end of 12 years is $45,000. They plan to finance 50% of the total investment with debt with a 12 -year fully amortizing loan at an interest rate of 6.5% with annual payments. Their marginal income tax rate is 28% and their after-tax discount rate (i.e., required rate of return of their own equity capital) is 25%. They expect annual growth rates in receipts and expenses of 2.5%. The time horizon for the investment is 12 years and the Husker's re-investment rate (for MIRR) is 10%. Answer the following: a. (30 points) Using estimated after-tax net cash flows, calculate the PBP, NPV, IRR, and MIRR and advise Husker Farms on what to do. What if President Biden gets his way and the marginal tax rate increases to 35% ? b. (10 points) What is the maximum rate of interest on the loan that allows Husker Farms to still achieve a 25% rate of return on their equity capital (i.e., IRR =25% )? (Make sure to set the marginal tax rate back to 28%.) c. (10 points) What percentage death loss would make Husker Farms reject the investment? (Make sure to reset the interest rate on the loan to 6.5% and determine the death loss percentage out to two decimal places.) d. (10 points) If the death loss is at the level you calculated in part c, and the salvage value is reduced to $0, what is the NPV, IRR, and MIRR? Is the investment acceptable? Why or why not? e. (10 points) Keeping the death loss at the level you found in part c and the terminal value at $0 from part d, what average broiler weight would make the Huskers accept the project? (70 points total) Husker Farms plans to build three new broiler houses on their farm. There are 20,000 broilers in each flock (house) and 6.75 flocks per year are expected. Husker Farms also expects a 4% death loss. Each broiler is expected to weigh 4.2lb. and sell for 0.05 cents per pound while direct costs per broiler are estimated to be 0.15 cents. Husker Farms will invest $30,000 in land which is not depreciable, spend $10,000 on equipment with a three-year depreciable life (straight line depreciation), and $20,000 per house with a ten-year depreciable life (straight line depreciation). Husker Farms estimates that the salvage value of the investment (net of all capital gains taxes) at the end of 12 years is $45,000. They plan to finance 50% of the total investment with debt with a 12 -year fully amortizing loan at an interest rate of 6.5% with annual payments. Their marginal income tax rate is 28% and their after-tax discount rate (i.e., required rate of return of their own equity capital) is 25%. They expect annual growth rates in receipts and expenses of 2.5%. The time horizon for the investment is 12 years and the Husker's re-investment rate (for MIRR) is 10%. Answer the following: a. (30 points) Using estimated after-tax net cash flows, calculate the PBP, NPV, IRR, and MIRR and advise Husker Farms on what to do. What if President Biden gets his way and the marginal tax rate increases to 35% ? b. (10 points) What is the maximum rate of interest on the loan that allows Husker Farms to still achieve a 25% rate of return on their equity capital (i.e., IRR =25% )? (Make sure to set the marginal tax rate back to 28%.) c. (10 points) What percentage death loss would make Husker Farms reject the investment? (Make sure to reset the interest rate on the loan to 6.5% and determine the death loss percentage out to two decimal places.) d. (10 points) If the death loss is at the level you calculated in part c, and the salvage value is reduced to $0, what is the NPV, IRR, and MIRR? Is the investment acceptable? Why or why not? e. (10 points) Keeping the death loss at the level you found in part c and the terminal value at $0 from part d, what average broiler weight would make the Huskers accept the project
