1. McCormick & Company is considering purchasing a new factory in Largo, Maryland. The purch
the factory is $750,000. The investment value of the factory is $868,080. What is the net present
2. If McCormick & Company decides to purchase the new factory in Largo, they need to consider
after-tax cash flow. McCormick & Company estimated their potential first-year sales revenue at $
expenses at $225,000, and depreciation expense at $150,000. McCormick's marginal tax rate is 4
percent federal and 19 percent state combined). What is first-year relative cash flow?
3. The estimated relevant annual expected cash flows (C1) associated with the purchase of the n
Largo are as follows:
In year 3,
the estimated relevant annual expected cash flows represents funds used to pay opera
expenses for subsequent years. All estimated relevant annual expected cash flows include a risk
13 percent, which has already been applied to the cash flows above. Solve for cash flow for Year
your answer in Question 2. Then, solve for present value (PV) for Year 1. What is the total of pres
all five years? Should the factory be purchased? Why or why not?
4. McCormick & Company is also considering introducing two new product lines to be made at th
factory (if it is purchased). As a new member of MCS's finance team, you are asked to determine
McCormick & Company should invest in the two product line expansions. Project A has lower fut
flows than Project B, but because Project A is more closely related to McCormick's existing produ
company feels it is less risky than Project B. You’ve done some more analysis and have formulate
following future profits for each project (with the first cash flow occurring one year from now). E
expected to have a life of 5 years.