The CFO wants you analyze the numbers and make a decision.
The firm stuffs geese with tallow, corn and herbs. This process adds fat to the liver which is the ingredient for pate de foe gras.
The firm has 75 acres of land in which 7500 geese are processed every month. The land needs an investment of $ 500,000 to return it to normal use at the end of the project. The market value of the land is $ 3 million.
This expansion needs an investment of $ 8 million. The equipment will be depreciated on a 7-year MACRS schedule. It will sold after 6 years for $ 2.0 million.
The CEO wishes to move operations (after 6 years) to a country with lesser restrictions.
The Geese sell for $ 65.00 each. Finishing costs are 45% of price. The fixed costs are $ 1,000,000. The tax rate is 30%. The CFO expects the net working capital for this project to be $ 800,000.
The CFO wants a rate of return of at least 8%.
A decision has to be made that the project is good enough to be invested in.