Chicago Turkey is considering a new turkey to service its western region stores. The stores currently require $650,000$ turkeys per year, and they are purchased from various local turkey farms for an average price of $$8$ per bird. The managers believe that their new farm would lower the cost per bird to $$7,$ while maintaining the average selling price of $$12$ per bird. However, due to the centralized structure of this operation, shipping expenses will increase to $$1\mathrm{.}25$ per bird from the current $$1\mathrm{.}00.$ The firm will need to increase its inventory of live turkeys by $$45,000.$ It will cost $$200,000$ to purchase the land and $$350,000$ to construct the buildings and purchase equipment. In addition, labor expenses will rise by $$250,000$ per year. The buildings and equipment will be depreciated using the straight$-$line method over five years to a salvage value of $$100,000.$ After five years, the company will sell the farm for $$300,000($$$100,000$ for the buildings and equipment, $$200,000$ for the land$).$ The firm$$s marginal tax rate is $25\%.$ Note that land is not depreciable.

Calculate the initial outlay, after$-$tax cash flows, and terminal cash flow for this project.

If the WACC is $12\%,$ calculate the payback period discounted payback period, NPV$,$ PI$,$ IRR, and MIRR.

Management is uncertain about several of the variables in your analysis and has asked you to provide three different scenarios.

Scenario

Labor Expense

Salvage Value of Buildings

Salvage Value of Land

Best Case

$$200,000$

$$150,000$

$$300,000$

Expected Case

$250,000$

$100,000$

$200,000$

Worst Case

$350,000$

$20,000$

$40,000$

Create a scenario analysis showing the profitability measures for this investment using the information in the table above $($note: The salvage value of the buildings is the actual forecasting salvage value, not that used for depreciation$)$

The Chief Financial Officer of Eaton Medical Devices has determined that the firm$$s capital investment budget will be $$5,000,000$ for the upcoming year. Unfortunately, this amount is not sufficient to cover all of the positive NPV projects available to the firm.

Project

Cost

NPV

A

$$1,061,191$

$$122,737$

B

$561,758$

$58,102$

C

$1,647,849$

$280,660$

D

$1,026,020$

$89,365$

E

$191,870$

$17,568$

F

$1,333,625$

$76,960$

G

$3,102,642$

$123,240$

H

$275,568$

$79,367$

I

$2,044,070$

$60,506$

J

$1,017,567$

$56,690$

You have been asked to choose which investments should be made.

Using the Solver, determine which of the above projects should be included in the budget if the firm$$s goal is to maximize shareholder wealth $($Note: Set the Solver to use the Simplex LP method, and turn off the Ignore Integer Constraints setting.$)$