ABOUT INVESTMENT APPRASIEL

The BrigTurK is a company that raises and slaughters poultry (turkeys). Up to now it has sold only whole turkeys, but if it could sell the meat by limbs (thigh, breast, wings and others) it could earn about 3.5 per kg of turkey, as opposed to the current 2,40, as well as presenting alternative ways of consuming this animal. Due to the behaviour of the market in the last few years, it is estimated that the selling price can have a standard deviation of 25 cent. To achieve this goal, the shareholders must invest 175200 in equipment and the materials needed to commercialize the meat in these conditions (cuvettes and cling film). The equipment is depreciated in 10 years. As it is not expected any increase in production, the turkeys that will not be sold as a whole will be sold in strips, and it is estimated that in the next 5 years the production of the strips will evolve as follows: Year 1 2 3 4 5 turkeys (ton) 80 100 120 150 150 On the other hand, material consumption is small because for each kilogram of turkey meat sold in members, there is only a cost of 25 cents. Since the commodity in question is highly perishable, stocks of turkeys will be kept so low as to be negligible. The same is true for materials consumed, but in this case due to their low unit value. Since the customers will be the same, the collection periods should not change, remaining at around 1 month; the payment period for the new suppliers should be 2 months. When calculating the economic and financial viability of this investment, partners should take into account the tax burden, which translates into a corporate tax rate of 25%. The weighted cost of capital of the company is 6%. Do not take VAT into consideration. Using these data, a) Calculate the proforma income statement and the investment in working capital for a forecast period of 5 years. b) Evaluate the economic and financial viability of the project, assuming the certainty of the forecast and the residual value is equivalent to booking value of the fixed assets and recovery of the investment in the working capital. c) Assess the viability of the project if the price of turkeys varies 5% and the cost operational costs varies 10% and the cost of capital varies 0,25% (Hint: use scenario analysis) Write a two-page to six-pages report to answer to questions above. The economic and financial appraisal of the project must use traditional measures of investment appraisal in certainty context (NPV, IRR, Payback, etc.). The report must have a descriptive memorandum to present the investment project, then you should present the budgets and proforma financial statements as well as the forecasting of cash flows of the project. Finally, the use of methods project evaluation in the context of certainty and uncertainty to assess the economic and financial viability of the investment project.