Please answer question 5 and 8 and please show work (how you got the numbers).

Indian River Citrus Company (A) Indian River Citrus Company is a leading producer of fresh, frozen, and made-from-concentrate citrus drinks. The firm was founded in 1929 by Matthew Stewart, a navy veteran who settled in Miami after World War I and began selling real estate. Since real estate sales were booming, Stewart's fortunes soared. His investment philosophy, which he proudly displayed behind his desk, was "Buy land. They aren't making any more of it." He practiced what he preached, but instead of investing in residential property, which he knew was grossly overvalued, he invested most of his sales commissions in citrus land located in Florida's Indian River County. Originally, Stewart sold his oranges, lemons, and grapefruit to wholesalers for distribution to grocery stores. However, in 1965, when frozen juice sales were causing the industry to boom, he joined with several other growers to form Indian River Citrus Company, which processed its own juices. Today, its Indian River Citrus, Florida Sun, and Citrus Gold brands are sold throughout the United States. Indian River's management is currently evaluating a new product-lite orange juice. Studies done by the firm's marketing department indicate that many people who like the taste of orange juice will not drink it because of its high calorie count. The new product would cost more, but it would offer consumers something that no other competing orange juice product offers-35 percent less calories. Lili Romero and Brent Gibbs, recent business school graduates who are now working at the firm as financial analysts, must analyze this project, along with two other potential investments, and then present their findings to the company's executive committee. Production facilities for the lite orange juice product would be set up in an unused section of Indian River's main plant. Relatively inexpensive, used machinery with an estimated cost of only $500,000 would be purchased, but shipping costs to move the machinery to Indian River's plant would total $20,000, and installation charges would add another $50,000 to the total equipment cost. Further, Indian River's inventories (raw materials, work-in-process, and finished goods) would have to be increased by $10,000 at the time of the initial investment. The machinery has a remaining economic life of 4 years, and the company has obtained a special tax ruling that allows it to depreciate the equipment under the MACRS 3-year class. Under current tax law, the depreciation allowances are 0.33, 0.45, 0.15, and 0.07 in Years 1 through 4, respectively. The machinery is expected to have a salvage value of $100,000 after 4 years of use. The section of the main plant where the lite orange juice production would occur has been unused for several years, and consequently it has suffered some deterioration. Last year, as part of a routine facilities improvement program, Indian River spent $100,000 to rehabilitate that section of the plant. Brent believes that this outlay, which has already been paid and expensed for tax purposes, should be charged to the lite orange juice project. His contention is that if the rehabilitation had not taken place, the firm would have to spend the $100,000 to make the site suitable for the orange juice production line. Indian River's management expects to sell 425,000 16-ounce cartons of the new orange juice product in each of the next 4 years, at a price of $2.00 per carton, of which $1.50 per carton would be needed to cover fixed and variable cash operating costs. Since most of the costs are variable, the fixed and variable cost categories have been combined. Also, note that operating cost changes are a function of the number of units sold rather than unit price, so unit price changes have no effect on operating costs. In examining the sales figures, Lili Romero noted a short memo from Indian River's sales manager which expressed concern that the lite orange juice project would cut into the firm's sales of regular orange juicethis type of effect is called cannibalization. Specifically, the sales manager estimated that regular orange juice sales would fall by 5 percent if lite orange juice were introduced. Lili then talked to both the sales and production managers and concluded that the new project would probably lower the firm's regular orange juice sales by $40,000 per year, but, at the same time, it would also reduce regular orange juice production costs by $20,000 per year, all on a pre-tax basis. Thus, the net cannibalization effect would be $40,000+ $20,000 = -$20,000. Indian River's federal-plus-state tax rate is 40 percent, and its overall cost of capital is 10 percent, calculated as follows: WACC = Wak (1-1) + w kg = 0.5(10%)(0.6) + 0.5(14%) = 10.0%. Lili and Brent were asked to analyze this project, along with two other projects, and then to present their findings in a "tutorial" manner to Indian River's executive committee. The financial vice president, Lili and Brent's supervisor, wants them to educate some of the other executives, especially the marketing and sales managers, in the theory of capital budgeting so that these executives will have a better understanding of capital budgeting decisions. Therefore, Lili and Brent have decided to ask and then answer a series of questions as set forth below. Specifics on the other two projects that must be analyzed are provided in Questions 9 and 10. 5. Estimate the project's operating cash flows. (Hint: Again use Table 1 as a guide.) What are the project's NPV, IRR, modified IRR (MIRR), and payback? Should the project be undertaken? [Remember: The MIRR is found in three steps: (1) compound all cash inflows forward to the terminal year at the cost of capital, (2) sum the compounded cash inflows to obtain the terminal value of the inflows, and (3) find the discount rate which forces the present value of the terminal value to equal the present value of the net investment outlays. This discount rate is defined as the MIRR.) 8. Now assume that the sales price will increase by the 5 percent inflation rate beginning after Year 0. However, assume that cash operating costs will increase by only 2 percent annually from the initial cost estimate, because over half of the costs are fixed by long-term contracts. For simplicity, assume that no other cash flows (net externality costs, salvage value, or net working capital) are affected by inflation. What are the project's NPV, IRR, MIRR, and payback now that inflation has been taken into account? (Hint: The Year 1 cash flows, as well as succeeding cash flows, must be adjusted for inflation because the original estimates are in Year 0 dollars.) Indian River Citrus Company (A) Indian River Citrus Company is a leading producer of fresh, frozen, and made-from-concentrate citrus drinks. The firm was founded in 1929 by Matthew Stewart, a navy veteran who settled in Miami after World War I and began selling real estate. Since real estate sales were booming, Stewart's fortunes soared. His investment philosophy, which he proudly displayed behind his desk, was "Buy land. They aren't making any more of it." He practiced what he preached, but instead of investing in residential property, which he knew was grossly overvalued, he invested most of his sales commissions in citrus land located in Florida's Indian River County. Originally, Stewart sold his oranges, lemons, and grapefruit to wholesalers for distribution to grocery stores. However, in 1965, when frozen juice sales were causing the industry to boom, he joined with several other growers to form Indian River Citrus Company, which processed its own juices. Today, its Indian River Citrus, Florida Sun, and Citrus Gold brands are sold throughout the United States. Indian River's management is currently evaluating a new product-lite orange juice. Studies done by the firm's marketing department indicate that many people who like the taste of orange juice will not drink it because of its high calorie count. The new product would cost more, but it would offer consumers something that no other competing orange juice product offers-35 percent less calories. Lili Romero and Brent Gibbs, recent business school graduates who are now working at the firm as financial analysts, must analyze this project, along with two other potential investments, and then present their findings to the company's executive committee. Production facilities for the lite orange juice product would be set up in an unused section of Indian River's main plant. Relatively inexpensive, used machinery with an estimated cost of only $500,000 would be purchased, but shipping costs to move the machinery to Indian River's plant would total $20,000, and installation charges would add another $50,000 to the total equipment cost. Further, Indian River's inventories (raw materials, work-in-process, and finished goods) would have to be increased by $10,000 at the time of the initial investment. The machinery has a remaining economic life of 4 years, and the company has obtained a special tax ruling that allows it to depreciate the equipment under the MACRS 3-year class. Under current tax law, the depreciation allowances are 0.33, 0.45, 0.15, and 0.07 in Years 1 through 4, respectively. The machinery is expected to have a salvage value of $100,000 after 4 years of use. The section of the main plant where the lite orange juice production would occur has been unused for several years, and consequently it has suffered some deterioration. Last year, as part of a routine facilities improvement program, Indian River spent $100,000 to rehabilitate that section of the plant. Brent believes that this outlay, which has already been paid and expensed for tax purposes, should be charged to the lite orange juice project. His contention is that if the rehabilitation had not taken place, the firm would have to spend the $100,000 to make the site suitable for the orange juice production line. Indian River's management expects to sell 425,000 16-ounce cartons of the new orange juice product in each of the next 4 years, at a price of $2.00 per carton, of which $1.50 per carton would be needed to cover fixed and variable cash operating costs. Since most of the costs are variable, the fixed and variable cost categories have been combined. Also, note that operating cost changes are a function of the number of units sold rather than unit price, so unit price changes have no effect on operating costs. In examining the sales figures, Lili Romero noted a short memo from Indian River's sales manager which expressed concern that the lite orange juice project would cut into the firm's sales of regular orange juicethis type of effect is called cannibalization. Specifically, the sales manager estimated that regular orange juice sales would fall by 5 percent if lite orange juice were introduced. Lili then talked to both the sales and production managers and concluded that the new project would probably lower the firm's regular orange juice sales by $40,000 per year, but, at the same time, it would also reduce regular orange juice production costs by $20,000 per year, all on a pre-tax basis. Thus, the net cannibalization effect would be $40,000+ $20,000 = -$20,000. Indian River's federal-plus-state tax rate is 40 percent, and its overall cost of capital is 10 percent, calculated as follows: WACC = Wak (1-1) + w kg = 0.5(10%)(0.6) + 0.5(14%) = 10.0%. Lili and Brent were asked to analyze this project, along with two other projects, and then to present their findings in a "tutorial" manner to Indian River's executive committee. The financial vice president, Lili and Brent's supervisor, wants them to educate some of the other executives, especially the marketing and sales managers, in the theory of capital budgeting so that these executives will have a better understanding of capital budgeting decisions. Therefore, Lili and Brent have decided to ask and then answer a series of questions as set forth below. Specifics on the other two projects that must be analyzed are provided in Questions 9 and 10. 5. Estimate the project's operating cash flows. (Hint: Again use Table 1 as a guide.) What are the project's NPV, IRR, modified IRR (MIRR), and payback? Should the project be undertaken? [Remember: The MIRR is found in three steps: (1) compound all cash inflows forward to the terminal year at the cost of capital, (2) sum the compounded cash inflows to obtain the terminal value of the inflows, and (3) find the discount rate which forces the present value of the terminal value to equal the present value of the net investment outlays. This discount rate is defined as the MIRR.) 8. Now assume that the sales price will increase by the 5 percent inflation rate beginning after Year 0. However, assume that cash operating costs will increase by only 2 percent annually from the initial cost estimate, because over half of the costs are fixed by long-term contracts. For simplicity, assume that no other cash flows (net externality costs, salvage value, or net working capital) are affected by inflation. What are the project's NPV, IRR, MIRR, and payback now that inflation has been taken into account? (Hint: The Year 1 cash flows, as well as succeeding cash flows, must be adjusted for inflation because the original estimates are in Year 0 dollars.)