Fill out the template using the following information:

Your family owns a company. A couple of months ago, your parents wereapproached by S-Mart (a supermarketchain) with a request to supply cheese for its stores in for the next four years. Your parents are considering building an additional production line totake this offer. They want to conduct a capital budgeting analysis of this project to see whether it is acceptable.

The information you collected is list as follow:

1. Totake on this contract, the company needs to purchase new equipmentat the cost of$460,000. The new equipmentwill be depreciated base on a five-year MACRS schedule. The usedequipmentcan be sold at20% of its initial purchase price at the end of year 4.

2. The new production line would have to be placedona farm that is currently rentedby a small business paying $15,000/year (after tax) to your parents. However, your parents also have an agreement to sell this farm in five years to a real estate developer for $250,000 (after tax). It means that after this project is completed, the farm would have to be restored to its original condition. The restoration will happen in year 5, and the cost is $80,000.

3. The contract calls fordeliveryof 55,000 pounds cheese per year at a price of $7 per pound. However, your parents plan to produce 60,000 pounds, 83,000 pounds, 85,000 pounds, and 74,000 pounds, respectively, over the next four years to maximize the capacity of the production line. The excess production is going to be soldat $9 per pound in the retail market.

4. Estimated variable cost is $2.1 per pound,and the xedcostis $200,000 per year.

5. net workingcapital (NWC) investment is 10% of sales. The NWC has to be built up at the beginning of each year. (i.e. NWC needed for year t = 10% of sales of year t)

6. taxrate is30%.Itscost of capital is 10% (discount rate). Assume a loss in any year will result in a tax credit.