If Indian River Citrus, does not have the opportunity to lease the space, does this mean that the space is free or costless, from the standpoint of the lite product project?

2. Should the erosion of profit from regular orange sales be charged to the lite orange project? What if it were believed that if Indian River did not introduce the lite product, a competing firm would very likely do so, so that regular juice sales would be adversely affected regardless of whether or not the project in question is accepted?

3. What is the Year 0 net investment outlay on this project? What is the expected non operating cash flow when the project is terminated at year 4? Hint: Use spreadsheet

4. Estimate the projects operating cash flows inclusive of cannibalization effects. ( Hint: Use spreadsheet as guide). What are the projects NPV, IRR, and Modified Internal Rate of Return, and Payback? Should the project be undertaken?.

5. Now assume that the sales price will increase by the 5% inflation rate beginning after year 0. However, cash operating costs will increase only by 2% annually from the initial cost estimate, because over half of the costs are either depreciation or are fixed by long term contracts. For simplicity, assume that no other cash flows ( net cannibalization costs, salvage value, or net working capital) are affected by inflation. Find the projects NPV, IRR, MIRR and Payback with inflation taken into account.( Hint: Use the spreadsheet and change the percent for price and cost inflation)

6. How would the projects NPV change if : Sales prices and operating cost per unit increased at the same rate, at 5% per year? Sales price increases only by 2%, but costs increase by 5% per year? .( Hint: Use the spreadsheet and change the percent for price and cost inflation)

7. The second capital budgeting analysis involved choosing between two mutually exclusive projects, S & L. What is each projects single cycle NPV. Now apply the replacement chain approach, and then repeat the analysis using the EAA approach. Which project should be chosen? Why?

8. Analyze the third project and calculate the NPV assuming the trucks were operated for full three years. What if the trucks were abandoned at the end of year 2 or at the end of year 1? What is the economic life of the project? 12. What are your overall recommendations for all the projects ? Would recommend that the project be accepted, rejected, or studied further? Justify your answer?

INPUT DATA: KEY OUTPUT: Initial Investment: Price Freight Instalation Change in NWC $500,000 $20,000 $50,000 $10,000 NPV IRR MIRR Payback $2,563 10.2% 10.1% 32 Operating Flows and Inflation Rates: Sales volume Year 0 sales price Operating costs Price inflation Cost inflation 425,000 $2.00 $1.50 0.0% 0.0% Salvage Value, Tax Rate, and Cost of Capital: Salvage value Tax rate Cost of capital $100,000 40% 10% Effects on Other Projects: Revenue reduction Cost reduction $40,000 $20,000 MODEL GENERATED DATA: Net Investment Outlay: Price Freight Installation Change in MWC $500,000 20,000 50,000 10,000 $580,000 Depreciation Schedule: Depreciable basis = $570,000 MACRS Factor Dep. Expense Book Value Year 1 2 3 4 33% 45% 15% 7% $188,100 256,500 85,500 39,900 $381,900 125,400 39,900 0 100% $570,000 Project Cash Flows: Year 0 Year 1 Year 2 Year 3 Year 4 Unit price $2.00 $2.00 425,000 $2.00 425,000 $2.00 425,000 $2.00 425,000 Unit sales Revenues Operating costs Depreciation Other project effects $850,000 637,500 188, 100 20,000 $850,000 637,500 256,500 20,000 $850,000 637,500 85,500 20,000 $850,000 637,500 39,900 20,000 Before tax income Taxes $4,400 1,760 ($64,000) 0 $107,000 42,800 $152,600 61,040 Net income Plus depreciation $2,640 188, 100 ($64,000) 256,500 $64,200 85,500 $91,560 39,900 Net op cash flow $190,740 $192,500 $149,700 $131,460 Salvage value SV tax Recovery of NWC $100,000 40,000 10,000 Termination CF $70,000 Project NCF ($580,000) $190,740 $192,500 $149,700 $201,460 Decision Measures: NPV IRR TV MIRR Payback $2,563 10.2% $852,930 10.1% 3.2 years Cumulative Cash Flows: Year 0 ($580,000) 1 (389,260) 2 (196,760) 3 (47,060) 4 154,400 SENSITIVITY ANALYSIS: Input for graphs Cash Costs Inflation: Price Infi 2562.6255 0.0% 1.0% 2.0% 3.0% 4.0% 5.03 6.0% 7.0% 8.0% 0.0% $23,720 62,582 102,188 142,547 183,671 225,570 268,256 311,739 356,032 1.0% ($5,427) 33,435 73,041 113,400 154,524 196,423 239,109 282,592 326,885 2.03 $35,131) 3,731 43,337 83,696 124,820 166,719 209,405 252,888 297,181 3.0% ($65,401) (26,538) 13,067 53,426 94,550 136,450 179,135 222,619 266,911 4.0% ($96,244) (57,381) (17,776) 22,584 63,707 105,607 148,293 191,776 236,068 5.0% ($127,668) (88,806) (49,200) (8,841) 32,283 74,182 116,868 160,352 204,644