Allied Food Products is considering expanding into the fruit juice business with a new

fresh lemon juice product. Assume that you were recently hired as assistant to the director of

capital budgeting, and you must evaluate the new project. The lemon juice would be produced in

an unused building adjacent to Allied's Fort Myers plant; Allied owns the building, which is fully

depreciated. The purchase price of the required equipment is $$280,000,$ including shipping and

installation costs, and the equipment is eligible for $100\%$ bonus depreciation at the tune of

purchase.

In addition, inventories would rise by $$25,000,$ while accounts payable would increase by

$$5,000.$ All of these costs would be incurred at t $=0.$

The project is expected to operate for $4$ years, at which time 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

salvage value of $$25,000.$

Unit sales are expected to total $100,000$ units per year, and the expected sales price is

$$2\mathrm{.}00$ per unit. Cash operating costs for the project are expected to total $60\%$ of dollar sales.

Allied's tax rate is $25\%.$ Fill out the tabel:

End of Year: $01234$

I. Investment Outlays

CAPEX $*(1-$ T$)$

lncrease in inventory

Increase in accounts payable

$\backslash$Delta NOWC

II$.$ Project Operating CashFlows

Unit sales $100,000$

Price$/$unit $$2\mathrm{.}00$ $$2\mathrm{.}00$

Total revenues $$200,000$

Operating costs $$120,000$

Depreciation: $100\%$ Bonus Depredation In Year $0$ $$0$ $$0$ $$0$ $$0$

Total costs $$120,000$ $$120,000$

EBIT$($or operating income$)$ $$80,000$

Taxes on operating income $(25\%)$ $$20,000$ $$20,000$

EBIT $(1-$ T$)=$ After$-$tax operating Income $$60,000$

Add back depreciation $$0$ $$0$

EBIT $(1-$ T$)+$ DEP $$60,000$ $$60,000$

III. Project Termination Cash Flows

Salvage value $($taxed as ordinary Income$)$

Tax on salvage value $(25\%)$

After$-$tax salvage value

$\backslash$Delta NOWC $=$ Recovery of NOWC

Project free cash flows $=$

EBIT$($l $-$ T$)+$ DEP $-$ CAPEX$-\backslash$Delta NOWC $ $(230,000)$ $ $98,750\mathrm{.}0$

IV$.$ Results

NPV$=$

IRR$=$

MIRR$=$