Hi,

I have atached two seperate pages. Its a case for Capital Budgeting Analysis.

Appreciated if you can help.

Thank you,

Case S-2B -Capital Budgeting Analysis - Directed Case S-2B NARANG INC. Capital Budgeting Analysis Narang Inc. is a producer of ethnic citrus drinks in the U.S. They produce innovative, fresh, fruit drinks based on ethnic recipes from across the world. Narang buys fresh fruit in the global commodities markets and bottles their recipes in the U.S. Their main target is the ethnic population in the U.S., and they distribute their products through international food markets all over the country. Recently, they have ventured into the market for sugarcane juices, and are looking to produce a new juice, Cane Zinger. The juice borrows from an Indian recipe, and is a blend of sugarcane juce, ginger, and mint, mixed in with a hint of cayenne Production facilities for Cane Zinger would be set up in an unused section of Narang's main plant. Currently, this space is being leased by another production firm for one of their products. If Narang uses the space for Cane Zinger, the firmwil forego lease income to the tune of $60,000 per year. Two years ago, Narang spent $350,000 to rehabilitate the facility Machinery and other equipment needed to set up the production line are estimated to cost S600,000 with an additional S35,000 for shipping and handling. Inventory (raw materials, work in-process, and finished produets) would have to be increased by $30,000 at the time of the initial investment, and in addition, a recurring increase of $2,500 will be needed each year of the project's operation. All of this is expected to be recovered at the completion of the project. The machinery will be depreciated under the MACRS 3-year class. The machinery is expected to have a salvage value of $75,800 after 5 years of ust Narang's marketing department has estimated a demand of 200,000 16-ounce cans of Cane Zinger each year in the next 5 years. The price is expected to be $4.50 per can. Fixed costs are estimated to be $200,000 per year, and variabie operating costs are expected to be $2.30 per can. Narang expects Cane Zinger to be popular enough to cut into their sales of some of their already existing products. They estinate that the cannibalization will reduce existing product sales by about $150,000 net per year. Test marketing of Cane Zinger prior to production cost S242,000 Narang is in the 40% tax bracket, and its overall WACC is 13% Your task is to complete a report in which you determine whether Narang should invest in the Cane Zinger project or not. You should investigate several inflation scenarios that are possible (1) A base case where no inflation assumptions are made (2) When inflation in sales price is expected to be 4% and variable cost to be 3% beyondyear (3) When inflation is 4% in both sales price and variable cost beyond year- Use the questions below to analyze and structure your report. Page I Case S-2B -Capital Budgeting Analysis - Directed Case S-2B NARANG INC. Capital Budgeting Analysis Narang Inc. is a producer of ethnic citrus drinks in the U.S. They produce innovative, fresh, fruit drinks based on ethnic recipes from across the world. Narang buys fresh fruit in the global commodities markets and bottles their recipes in the U.S. Their main target is the ethnic population in the U.S., and they distribute their products through international food markets all over the country. Recently, they have ventured into the market for sugarcane juices, and are looking to produce a new juice, Cane Zinger. The juice borrows from an Indian recipe, and is a blend of sugarcane juce, ginger, and mint, mixed in with a hint of cayenne Production facilities for Cane Zinger would be set up in an unused section of Narang's main plant. Currently, this space is being leased by another production firm for one of their products. If Narang uses the space for Cane Zinger, the firmwil forego lease income to the tune of $60,000 per year. Two years ago, Narang spent $350,000 to rehabilitate the facility Machinery and other equipment needed to set up the production line are estimated to cost S600,000 with an additional S35,000 for shipping and handling. Inventory (raw materials, work in-process, and finished produets) would have to be increased by $30,000 at the time of the initial investment, and in addition, a recurring increase of $2,500 will be needed each year of the project's operation. All of this is expected to be recovered at the completion of the project. The machinery will be depreciated under the MACRS 3-year class. The machinery is expected to have a salvage value of $75,800 after 5 years of ust Narang's marketing department has estimated a demand of 200,000 16-ounce cans of Cane Zinger each year in the next 5 years. The price is expected to be $4.50 per can. Fixed costs are estimated to be $200,000 per year, and variabie operating costs are expected to be $2.30 per can. Narang expects Cane Zinger to be popular enough to cut into their sales of some of their already existing products. They estinate that the cannibalization will reduce existing product sales by about $150,000 net per year. Test marketing of Cane Zinger prior to production cost S242,000 Narang is in the 40% tax bracket, and its overall WACC is 13% Your task is to complete a report in which you determine whether Narang should invest in the Cane Zinger project or not. You should investigate several inflation scenarios that are possible (1) A base case where no inflation assumptions are made (2) When inflation in sales price is expected to be 4% and variable cost to be 3% beyondyear (3) When inflation is 4% in both sales price and variable cost beyond year- Use the questions below to analyze and structure your report. Page