A History of the Indian River Citrus Company

2331 WordsOct 13, 201410 Pages
Indian River Citrus Company (A) Indian River Citrus Company is a leading producer of fresh, frozen, and made-from-concentrate citrus drinks. The firm was founded in 1929 by Matthew Stewart, a navy veteran who settled in Miami after World War I and began selling real estate. Since real estate sales were booming, Stewart’s fortunes soared. His investment philosophy, which he proudly displayed behind his desk, was “Buy land. They aren’t making any more of it.” He practiced what he preached, but instead of investing in residential property, which he knew was grossly overvalued, he invested most of his sales commissions in citrus land located in Florida’s Indian River County. Originally, Stewart sold his oranges, lemons, and grapefruit to…show more content…
Also, interest expenses should not be included, because the cost of capital is already included in the analysis as a discount. 2. Should the $100,000 that was spent to rehabilitate the plant be included in the analysis? Explain. No this value should not be included because it is a sunk cost. 3. Suppose another citrus producer had expressed an interest in leasing the lite orange juice production site for $25,000 a year. If this were true (in fact, it was not), how would that information be incorporated into the analysis? The $25,000 is an opportunity cost, so it’s important to include this value because by accepting the project, this $25,000 would not be received and wouldn’t be a relevant value. 4. What is Indian River’s Year 0 net investment outlay on this project? What is the expected non-operating cash flow when the project is terminated at Year 4? (Hint: Use Table 1 as a guide.) Net operating Outlay = 580,000 (Equipment cost + Shipping Charge + Installation Charge + Net Working Cap) Non-Operating Cash Flow = 91,560 5. Estimate the project’s operating cash flows. (Hint: Again use Table 1 as a guide.) What are the project’s NPV, IRR, modified IRR (MIRR), and payback? Should the project be undertaken? [Remember: The MIRR is found in three steps: (1) compound all cash inflows forward to the terminal year at the cost of capital, (2) sum the compounded cash inflows to obtain the terminal
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