Petaluma Chicken, Inc. is considering a new organic chicken farm to service it's western regional stores and has hired you as a consultant to make a recommendation. The stores currently require 500,000 birds per year and they are purchased from various local chicken farms for an average price of S3 per bird. The managers believe that their new organic farm would raise the cost per bird to $4, while raising the average selling price to $8.50 per bird from $6.50 per bird now. However, due to the centralized structure of the is operation, shipping expenses will likely decrease from S1.00 per bird to S0.75. The firm feels it will need to increase its inventory of live birds by $15,000, and it will cost $150,000 to purchase the land, and S300,000 to construct the buildings and purchase equipment. In addition, labor expense is expected to rise by $130,000 per year The buildings and equipment will be depreciated using the straight-line method over five years to a salvage value of S100,000. After five years, the company will sell the farm for S300,000 (Base case estimate is S100,000 for the buildings and equipment and $200,000 for the land). The firms tax rate is 35% and be sure you remember that land is not depreciable. Given that, construct a spread sheet that calculates the initial outlay, after tax cash flows, and terminal cash flow for the project. The company's cost of capital is 1 1%, find NPV and IRR. Using that, decide if this is a go or no go project. Then do any other analysis you think might be useful to the CEO. When complete, construct a memo that will inform the CEO of your findings and your suggested course of action. Next week, three different market scenarios will be added. You will learn how to conduct the what-if or scenario analysis in that week. Note: This format of this spreadsheet model is for the purpose of a controlled "classroom exercise" so the instructor can look at your spreadsheet model online. Please print both the gridlines and headlines so we can refer to a specific cell in our formula. In your final report (in Week 3), you can change the format to the form you would like. Petaluma Chicken, Inc. is considering a new organic chicken farm to service it's western regional stores and has hired you as a consultant to make a recommendation. The stores currently require 500,000 birds per year and they are purchased from various local chicken farms for an average price of S3 per bird. The managers believe that their new organic farm would raise the cost per bird to $4, while raising the average selling price to $8.50 per bird from $6.50 per bird now. However, due to the centralized structure of the is operation, shipping expenses will likely decrease from S1.00 per bird to S0.75. The firm feels it will need to increase its inventory of live birds by $15,000, and it will cost $150,000 to purchase the land, and S300,000 to construct the buildings and purchase equipment. In addition, labor expense is expected to rise by $130,000 per year The buildings and equipment will be depreciated using the straight-line method over five years to a salvage value of S100,000. After five years, the company will sell the farm for S300,000 (Base case estimate is S100,000 for the buildings and equipment and $200,000 for the land). The firms tax rate is 35% and be sure you remember that land is not depreciable. Given that, construct a spread sheet that calculates the initial outlay, after tax cash flows, and terminal cash flow for the project. The company's cost of capital is 1 1%, find NPV and IRR. Using that, decide if this is a go or no go project. Then do any other analysis you think might be useful to the CEO. When complete, construct a memo that will inform the CEO of your findings and your suggested course of action. Next week, three different market scenarios will be added. You will learn how to conduct the what-if or scenario analysis in that week. Note: This format of this spreadsheet model is for the purpose of a controlled "classroom exercise" so the instructor can look at your spreadsheet model online. Please print both the gridlines and headlines so we can refer to a specific cell in our formula. In your final report (in Week 3), you can change the format to the form you would like