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I need help with option 3 Let's revisit the optimal firm location problem we discussed a few classes ago. You work for dole foods and
I need help with option
Let's revisit the optimal firm location problem we discussed a few classes ago. You work for dole foods and they are trying to decide between two competing ideas for processing plant locations to turn oranges into orange juice. The life of the plant in either location will be 20 years. This discount rate in either situation is 12%. Both plant locations have yearly processing capacity of turning 50,000 tons of oranges into 6 million gallons of juice. There is a 2 year construction time required for plants where they earn no revenue, pay no operating cost but have to pay the fixed construction cost in both time O and time 1. It is your job to discount costs and benefits over time to see which location is likely to make Dole more profitable. Option 1: You build an additional processing plant in Florida and sell your orange juice in the Miami market. -Fixed construction cost required in time O and 1 -Cost of oranges, water, plastic bottles, labor, electricity, and taxes, *'Production cost" =$1.25 per gallon of orange juice -Cost of tranSporting oranges to processing plant and orange juice to grocery stores=$O.75 per gallon of orange juice -Price of a gallon of orange juice in the Miami market: $3/gallon Option 2: You build an additional processing plant in California and sell your orange juice to the Los Angeles market. -Fixed construction cost required in time O and 1 = $18,000,000 -Cost of oranges, water, plastic bottles, labor, electricity, and taxes, "Production cost" =$1.75 per gallon of orange juice -Cost of transporting oranges to processing plant and orange juice to grocery stores=$O.85 per gallon of orange juice -Price of a gallon of orange juice in the Los Angeles market= $4.10/gallon Option 3: You build an additional processing plant in Florida and sell your orange juice to the Los Angeles market. -Cost of transporting oranges to processing plant and orange juice to grocery store is $1.50/gallon 1. Calculate the NPV of the net benefit stream over the life of the plant in all three Use cost benefit analysis to do this. Which of the three options in this basescenario is a best location for the processing plant? 2. Holding all else equal from the base case, does your optimal plant location change if the discount rate increases to 20%? 3. Holding all else equal from the base case, does your optimal plant location change if the price orange juice increases to $3.50 a gallon in Florida 4. Holding all else equal from the base case, does your optimal plant location change if taxes in California increase and increase total cost by $0.40 per gallon in California?
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