Project 4 McCormick & Company Workbook_Annise FINAL.xlsx -...

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Instructions To complete this workbook, answer the questions on each worksheet in the spa provided.
Questions 1. McCormick & Company is considering purchasing a new factory in Largo, Maryland. The purch factory is $4,000,000. McCormick & Company believes they can produce a net cash inflow of $78 years. If the discount rate is 14 percent, should McCormick & Company purchase the factory at t asking price? 2. If McCormick & Company decides to purchase the new factory in Largo, they need to consider cash flow. McCormick & Company estimated their potential first-year sales revenue at $780,000, $225,000, and depreciation expense at $150,000. McCormick's marginal tax rate is 40 percent (2 and 19 percent state combined). What is first-year relative cash flow? 3. The estimated relevent annual expected cash flows (C1) associated with the puchase of the ne are as follows: Year C1 PV(C1) 1 ? ? 2 $291,000 $202,083 3 $191,000 $110,532 4 $306,000 $147,569 5 $424,000 $170,396 In Year 3, the estimated relevent annual expected cash flows represents funds used to pay opera subsequent years. All estimated relevent annual expected cash flows include a risk premium of 1 has already been applied to the cash flows above. Solve for cash flow for Year 1 based on your an 2. Then, solve for present value (PV) for Year 1. What is the total of present value for all five year factory be purchased? Why or why not? 4. McCormick & Company is also considering introducing two new product lines to be made at th is purchased). As a new member of MCS's finance team, you are asked to determine whether Mc Company should invest in the two product line expansions. Project A has lower future cash flows but because Project A is more closely related to McCormick's existing product line, the company than Project B. You’ve done some more analysis and have formulated the following future profits (with the first cash flow occurring one year from now). Each project is expected to have a life of 5 Year 1 Year 2 Year 3 Year 4 Year 5 Project A $5M $10M $10M $15M Project B $5M $10M $15M $20M You also believe that each project will require about $40 million in upfront investment. Finally, ba $15M $20M

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