Sullivan Corporation, a multiproduct corporation, is a leading producer of fresh, frozen, and made-from-concentrate citrus drinks. The firm was founded in 2002 by Angus Sullivan, an army veteran who settled in Jacksonville, Florida, and began selling real estate. Since real estate sales were booming, Sullivans fortunes soared. His investment philosophy, which he proudly displayed behind his desk, was Buy land. They arent making any more of it; He practiced what he preached, and he invested most of his sales commissions in citrus land located in Floridas Indian River County. Originally, Sullivan sold his oranges and grapefruit to wholesalers for distribution to grocery stores, but when juice sales were expanding, he joined with several other producers to form Sullivan Corporation, which then expanded into juice processing. Today, its Sun Joy, Florida Gold, and Citrus Delite brands are sold throughout the United States.

Sullivans management is currently evaluating a new product, fresh papaya juice. The new product would cost more, but it is superior to the competing products. As Sullivans financial analyst, you must analyze this project, along with two other potential investments, and then present your findings to the companys executive committee.

Production facilities for the fresh papaya juice product would be set up in an unused section of Sullivans main plant. Relatively inexpensive used machinery with an estimated cost of only $1,200,000 would be purchased, but shipping costs to move the machinery to Sullivans plant would total $56,000 , and installation charges would add another $123,000 to the total equipment cost. Further, Sullivans inventories (raw materials, work-in-process, and finished goods) would have to be increased by $11,000 at the time of the initial investment. The machinery has a remaining economic life of 4.00 years, and the company has obtained a special tax ruling that allows it to depreciate the equipment under the MACRS 3.00-year class. Use the following depreciation schedule for your analysis:

The machinery is expected to have a salvage value of $51,000.00 after 4.00 years of use.

The section of the plant where the juice production would occur has been unused for several years, and consequently had suffered some deterioration. Last year, as part of a routine facilities improvement program, Sullivan spent $100,000 to rehabilitate that section of the main plant. Will Smith believes that this outlay, which has already been paid and expensed for tax purposes, should be charged to the papaya 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 papaya juice project.

Sullivans marketing department estimated that current annual demand for the papaya juice product would be 33,000 cartons of the new juice product, at a price of $16.00 per carton, but $9.00 per carton would be needed to cover fixed and variable cash operating costs. However, marketing estimates that produce demand will increase by 8,000 cartons each year and that the price per carton will increase by 2.00% per year over the economic life of the project. Accounting estimated that operating costs will increase by 3.00% per year above current operating costs.

In examining the sales figures, you note a short memo from Sullivans sales manager expressing concern that the fresh juice project would cut into the firms sales of frozen orange juice. Specifically, the sales manager estimated that orange juice concentrate sales would fall by 5 percent if fresh papaya juice were introduced. You then talked to both the sales and production managers, and concluded that the new project would probably lower the firms orange juice concentrate sales by $37,000.00 per year, but at the same time, it would also reduce production costs for this product by $47,000.00 per year, all on a pre-tax basis. For simplification, no inflationary pressures are associated with the decrease in orange juice sales and reduced production costs

To evaluate the project, you have had access to the following information.

1. Sullivans long-term debt consists of 7.90% coupon, semi-annual payment bonds with 15.00 years remaining to maturity. The bonds traded last week at a price of $1,000.00 per $1,000 par value bond. The bonds are not callable and are rated A.

2. Management has an aversion to short-term debt, so Sullivan uses such debt only to fund cyclical working capital needs.

3. Sullivans federal-plus-state tax rate is 41.00%.

4. The firms last dividend (Do) was $2.00 , and dividends are expected to grow at about a 4.00% rate in the foreseeable future. Sullivans common stock now sells at a price of $43.00 per share.

5. The current yield on long-term T-bonds is 8.00%, and a prominent investment banking firm has recently estimated that the market risk premium is 5.00% over Treasury bonds. The firms historical beta, as measured by several analysts who follow the stock, is 2.90.

6. The required rate of return on an average (A-rated) companys long-term debt is 11.80%.

7. The optimal capital structure for Sullivan calls for 60.00% long-term debt and 40% equity financing.

Question: What is the projects estimated net cash flow stream?