Coco Mix Essay

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oohCocoMix Juices© Mini-case Copyright © 2012 by Dr. Gabriel G. Ramírez FIN 4220 Bebidas-Sabrosas (B-S) Inc. is a producer and distributor of juice drinks. Currently, B-S has one line of tropical juices targeted to Hispanic communities in Chicago, LA, Miami, and New York. Two years ago, the firm decided to expand its operations and create a juice drink from Costa Rican green coconuts, or “pipas” (see Exhibit 1). The liquid inside pipas is clear, as opposed to the milky color in mature coconut. In Costa Rica as well as in many other countries, the popular pipa is served simply chilled with the shell opened so the customer can drink the liquid inside. During these past two years, the firm engaged in research and development and…show more content…
All investments in short- and long-term assets will be liquidated and the proceeds will be received (recorded) in year 11. Investments in working capital will be recovered at cost. It is estimated that the trucks could be sold for $200,000 and the equipment for $120,000. The depreciation method to use is the MACRS under which the trucks qualify as a 5-year property and the equipment as a 7-year property (Table 7.4 in “Chapter 7: Making Investment Decisions with the NPV rule” (chapter page 152) presents the respective percentage to use for MACRS). There are also start-up costs (expenses) in the amount of $50,000 during the first year of operations. Cost of good sold has two components: (1) a fixed component as presented in table A below and reflects salaries (does not include depreciation) and a variable component. The variable part of cost of goods sold (CGS) is estimated to 30% of sales in each year. In addition, the company will incur in Selling and Administration (S&A) expenses. S&A includes advertising, promotions, sales and distributor salaries, and other direct personnel salaries and S&A also has to components: (1) a fixed part and (2) a variable part (% of sales) both as indicated in table A below. Sales for next year will be $4 million. Working capital needs will vary with sales in the manner described below. The marketing department has been able to determine what portion of S&A expenses is variable and related to
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