Analysis of the Investment
To prepare for this Individual Assignment:
Review the Anthony’s Orchard case study in the unit resources.
Consider the following:
• The company, according to Anthony’s Orchard Strategic Plan, is hoping to purchase an apple press in order to start a new line of prepared apple products—apple juice.
• The company estimates this new product offering will generate an additional $95,000 net income per year and estimated cash flows of $90,000 per year. The cost of the apple press will be $950,000 and this expenditure, as shown in the budgeted cash flow statement, is expected to take place in the fourth quarter of 2012.
• The apple press is expected to have a seven-year life and no salvage value.
• The company requires a 10% return on investment for new capital investments and the company uses a cost of capital of 8%.
• The company’s revenue goal for 2015 is $25 million.
• Assume a minimum 12% gross margin on revenue.
To complete this Individual Assignment, answer the following:
• Do you think the company’s revenue goal of $25 million by 2015 is realistic?
• Explain how purchase of the apple press might affect the company’s revenue goals. Based on this information, explain whether Anthony’s Orchard should invest in the apple press. Support your response with relevant information provided in the case study, the previous year’s financials for 2010, the current year’s financials for 2011 and the budgeted year’s financials for 2012.
• Draft budgeted financial statements from 2012 to 2015 under both options that provide a realistic assessment of expected revenues and costs, and explain how you have arrived at these budgeted figures.
You should fully state and justify any assumptions that you make in relation to the financial data you use. Be sure to include all references as well.
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