Module 4 Mini-Case Assignment

The Owens Chocolatier Company is a midsized company operating in Virginia Beach, VA. The company specializes in making specialty chocolates and candies and sells its products in physical stores throughout the southeast. In recent years, the company has been successful at reaching customers throughout the US thanks to its revamped website and online marketing efforts. The company’s president Ryan Owens is considering purchasing new equipment and machinery to be able to meet the increased demand. The new machinery and equipment costs $450,000 and is expected to be used for 5 years. Mr. Owens expects to sell the equipment’s parts for $50,000 in year 6 and expects to use straight line depreciation. Since you are a recent MBA graduate, Mr. Owens asked you to evaluate whether such investment is likely to add value to the company. Working with the marketing and accounting departments, he gave you a report that shows expected revenues in the next 5 years and expected expenses. He also supplied you with expected investments in working capital. The tax rate= 21% and the required return = 15%.

	Year 1	Year 2	Year 3	Year 4	Year 5
Revenues	500000	550000	450000	380000	250000
Cost of Goods Sold	225000	247500	202500	171000	112500
Other Costs	30000	30000	30000	30000	30000
	Year 1	Year 2	Year 3	Year 4	Year 5
Working Capital	10800	26000	34000	28500	21600

Using what you have learned in your Managerial Finance course. Estimate the project’s cash flows, calculate the NPV and provide an investment recommendation. Attach your spreadsheet showing your calculations.

Here are some questions to guide your work:

1. What is the cash flow from Investment capital in year 6?
   1. $42,000
   1. $50,000
   1. $39,500
   1. $60,500

• What is the annual depreciation expense?
  • $90,000 B. $30,000
  • $ 122,450
  • $ 70,500

• What is the operating cash flow year 3?
  • $103,825
  • $234,175
  • $175,265
  • $190,725

1. What is the cash flow from investment in working capital in year 2?
   1. -$10800
      1. $13,000
      1. -$15,200
      1. -$20,200

• What is the cash flow from investment in working capital in year 6?
  • $21,600
    • $5500
    • $4,200
    • $19,200

• What is the project’s cash flow in year 0?
  • -$500,000
    • -$450,000
    • -$400,000 D. $-250,000

• What is the project’s cash flow year 1?
  • $200,425
    • $165,810
    • $198,300
    • $201,650

• What is the project’s cash flow year 6?
  • $110725
    • $71,200
    • $61,100
    • $39,500

• What is the project’s NPV?
  • $187,336
    • $204,226
    • -$17,000
    • -$180,338

• Do you recommend investing in the project?
  • Yes
    • No