Urika Corp. manufactures a variety of kitchen and dining equipment from mixers and food processors to flatware, serving utensils, cooking utensils, and other items for consumer and commercial use. Urika went public in 1984 at $27/share on the market (netting $23/share for the firm) and began issuing dividends in 1990 without missing a year since then. Due to their low debt and wise reinvestment of earnings, today the companys stock sells for $200/share.

As the company prepares for the next year, the President has tasked the senior leadership with finding major expansion projects in order take market share from industry leaders such as GE and Whirlpools subsidiary, KitchenAid. Over the past 5 years, the company has accumulated significant amounts of cash and other marketable assets to fund this expansion without materially affecting the firms debt or diluting the stockholders equity. The CFO has determined $22,500,000 will available in the 2012 capital budget to fund these new projects.

One project involves building the plant and equipment to equip and supply a new up-and-coming restaurant chain, Fast N Healthy, which has been making great strides at competing with fast-food chains along the West coast, and wants to re-equip and re-model existing stores and open 200 new stores nationwide over the next four years. Mr. Tony Estabal, Senior Vice President for Business Development at Urika is certain Urika will secure the four-year contract with Fast N Healthy due to Urikas previous successful work with the restaurant, their cost savings measures, and their experience and reputation within the industry. To compete with other bidders, Urika is able to provide some cost breaks to the restaurant chain for other kitchen and dining supplies because Urikas main plant is located near the restaurant chains main distribution warehouse. Even if Urika cannot under-bid competitors on price alone, other value-added benefits such as their existing relationship, reputation in the industry, and location would edge them over the competition. There is little to no risk of not securing this contract; therefore, this project has been given a priority green light status by the President and the corporations board.

PART 1 PROJECT CBA MODELING

Urika would need to invest an estimated $6,786,000 for plant and equipment that would depreciate over 30 years. Although Urika would probably continue using the plant and equipment for future endeavors and further expansion by Fast N Healthy, Tony has been instructed to make sure this project can stand on its own merits; therefore, a salvage or re-sale value for the Plant & Equipment has been estimated at $4,875,000 to be used as part of the exit strategy at termination of the contract. However, since the intention is to continue operating beyond that, you should depreciate the full amount and calculate the tax consequence of selling at the salvage.

Urika would also need to initially invest another $175,000 in working capital for materials. As the restaurant chain expands, Urika would need to ramp up manufacturing so that Working Capital is maintained at about 15% of Gross Revenues from the restaurant at the end of each period. Likewise, Direct Materials will cost about 15% of Gross Revenues. Since Urika hopes to continue this operation after the four years, the company will plan on having $450,000 in working capital at the end of four years, but this could be sold at book value if the operations cease.

The operation of the equipment from start to finish is expected to require six employees with a fully loaded (salaries, bonuses, benefits, taxes, etc.) cost of labor (COL) at about $74,250/year each. Tony wants to plan for 3% annual increases in the base COL.

Since this operation will be working at only about 50% of capacity in year one, additional labor will not be needed for the full four years of operations. However, by year three, estimated overtime will add another $.145 (or 14.5%) of every $1 of marginal revenue over $2.5M to the total COL (in other words, overtime for up to $2.5M in revenue = $0, but overtime for $2,500,001 is $0.145).

Overhead charged to the cost of goods sold will be assigned at a rate of 4% of Gross Revenue.

Because success of the restaurants expansion can affect the profitability as well as the scale of the projects, marketing analysts have provided the following revenue forecast for Urika based on the restaurant owners previous success and extensive market analysis. Mr. Estabal has asked you to weight Urikas expected revenue streams based on the following:

PART 2 SCENARIO ANALYSIS (10 points)

Using your model from above, now USE SCENARIO MANGER to create a scenario analysis report showing the yearly cash flows, NPV and IRR for the mutually exclusive scenarios that follow:

Scenario 1: The Probabilities for Worst, Probable and Best change to 25%/50%/25%

Scenario 2: Working Capital is changed to 18%

Scenario 3: Overtime changes to a 25% increase (vs. the 14.5%) per $1 of additional revenue

Scenario 4: P&E changes to $8.5M

Scenario 5: The Ultimate Worst Case: all four of the above at once.

NOTE: I DO NOT WANT TO SEE 5 SEPARATE, MANUALLY CALCULATED SCENARIOS. I WANT YOU TO USE SCENARIO MANAGER.

DATA WHAT-IF ANALYSIS SCENARIO MANAGER

Please show formulas on work

Scenario: Probablitly Year 1 Year 2 Year 3 PROJECTED GROSS REVENUE Worst Case Likely Best Case 15% 65% 20% $1.35M $1.48M $1.62M $1.60M $1.85M $1.96M $1.75M $2.80M $3.22M $1.98M $3.25M $3.60M Year 4 Scenario: Probablitly Year 1 Year 2 Year 3 PROJECTED GROSS REVENUE Worst Case Likely Best Case 15% 65% 20% $1.35M $1.48M $1.62M $1.60M $1.85M $1.96M $1.75M $2.80M $3.22M $1.98M $3.25M $3.60M Year 4