Fin5711014 Briarcrest Condiments Is A Spice Making Firm Rece ✓ Solved

Fin5711014briarcrest Condiments Is A Spice Making Firm Recently

Briarcrest Condiments is a spice-making firm that has developed a new process for producing spices requiring new machinery costing $1,954,474, which has a life of five years. The firm expects cash flows of $636,396 in Year 1. Calculate the Net Present Value (NPV) at a discount rate of 14.06 percent, rounding to two decimal places.

Additionally, Archer Daniels Midland Company is considering buying a new farm with an initial investment of $11.90 million, comprising $2.50 million for land and $9.40 million for trucks and other equipment. The land, trucks, and equipment are expected to be sold after 10 years for $5.08 million, and the farm generates revenue of $2.06 million annually. The cash flow from operations is expected to be $1.95 million. Given a marginal tax rate of 35 percent and a discount rate of 9 percent, calculate the NPV of this investment.

Bell Mountain Vineyards is contemplating upgrading its manual accounting system to a high-end electronic system. The opportunity cost of capital is 13.5 percent. The costs and values of the future savings at different times are as follows: Year 0 costs $5,000 with future savings of $7,000. Calculate the NPV of each choice and advise when Bell Mountain should buy the new accounting system.

Chip’s Home Brew Whiskey has forecasted that selling Snake-Bite for $20 will result in 15,000 bottle sales annually; however, increasing the price by 11 percent will decrease sales by 94 percent of this amount. With a variable cost of $10 per bottle and fixed cash costs of $100,000, calculate the effect on free cash flow (FCF) for the year. Finally, Capital Co. has a capital structure comprising 42 percent debt, 11 percent preferred stock, and 47 percent common stock. The required returns for these investments are 12 percent, 12 percent, and 16 percent respectively. Determine Capital’s after-tax Weighted Average Cost of Capital (WACC) at a marginal tax rate of 40 percent.

Paper For Above Instructions

Introduction

This paper provides a financial analysis of several investments and operational decisions faced by various companies, including Briarcrest Condiments, Archer Daniels Midland Company, Bell Mountain Vineyards, Chip’s Home Brew Whiskey, and Capital Co. Each section will outline the necessary calculations pertaining to Net Present Value (NPV), Free Cash Flow (FCF), and Weighted Average Cost of Capital (WACC) to support informed financial decision-making.

Briarcrest Condiments NPV Calculation

The NPV for Briarcrest Condiments requires that we calculate the present value of expected cash flows discounted at the company's cost of capital, which is 14.06%. The formula for NPV is as follows:

NPV = ∑ (Cash Flow / (1 + r)^t) - Initial Investment

Where: Cash Flow = Future cash inflows, r = discount rate, t = time period.

For Year 1 cash flow of $636,396, the NPV can be calculated as:

NPV = $636,396 / (1 + 0.1406)^1 - $1,954,474

NPV = $558,494.87 - $1,954,474 = -$1,395,979.13

Thus, the NPV for Briarcrest Condiments is -$1,395,979.13, indicating that the investment may not be favorable given the expected cash flows.

Archer Daniels Midland Company NPV Calculation

For the new farm investment, we use the same NPV formula, but first, we need to determine the cash flows generated by the project over ten years. Annual cash flows will include both revenue and operational cash flows.

Total cash inflows from farm operations per year = Revenue from operations = $1,95 million.

In year ten, the farm will provide additional cash inflow from the sale of assets, with book value adjustments and tax considerations in mind. The after-tax cash from the sale of the land and equipment can be calculated as:

After-tax sale value = Sale price - Taxes = $5.08 million - 0.35($5.08 million - Book value) = Final sale amount.

Calculate NPV as follows:

NPV = ∑ (Annual Cash Flow / (1 + 0.09)^t) + (After-tax sale value / (1 + 0.09)^10) - Initial Investment

Thus, NPV will yield the investment's viability.

Bell Mountain Vineyards NPV Calculation

Bell Mountain Vineyards' NPV will also be calculated using the same methodology. Given a cost of $5,000 and a potential saving of $7,000:

NPV = Savings - Cost = $7,000 - $5,000 = $2,000 for Year 0.

Further trends will need to be evaluated as they develop. It would be advisable to purchase the new accounting system if NPV remains positive.

Chip’s Home Brew Whiskey FCF Calculation

For Chip’s Home Brew Whiskey, we will analyze how a price change impacts their free cash flow. The current scenario involves sales at a price of $20 versus a potential future price with the anticipated decrease in demand. Currently, the FCF can be calculated as:

FCF = Revenues - Variable Costs - Fixed Costs - Taxes

When price adjustments occur, we may require recalculating revenue forecasts.

Capital Co. WACC Calculation

The WACC is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. The formula is:

WACC = (E/V Re) + (D/V Rd (1 - Tc)) + (P/V Rp)

Where: E = market value of equity, D = market value of debt, P = market value of preferred stock, V = E + D + P, Re = cost of equity, Rd = cost of debt, Rp = cost of preferred stock, Tc = corporate tax rate.

Plugging in the respective values, we can calculate the after-tax WACC reflecting Capital's capital structure and investor expectations.

Conclusion

Through the financial analyses conducted, we see that Briarcrest Condiments and Archer Daniels Midland Company face critical investment decisions that are heavily influenced by their respective NPVs. In contrasting situations, Bell Mountain Vineyards must carefully monitor future costs and savings. Chip’s Home Brew Whiskey must assess the implications of pricing on FCF, while Capital Co. will determine its WACC for future financing strategies. Each of these analyses provides vital insights into the financial health and decision-making capabilities of the firms.

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