Write a memo, Using that, decide if this is a go or no go project. Then do any other analysis you think might be useful to the CEO. When complete, construct a memo that will inform the CEO of your findings and your suggested course of action. Use the analysis compelted below.Calculations have already been done below. Just need the written memo to the ceo if this project is a go or a no.

Petaluma Chicken, Inc. is considering a new organic chicken farm to service it's western regional stores and has hired you as a consultant to make a recommendation. The stores currently require 500,000 birds per year and they are purchased from various local chicken farms for an average price of $3 per bird.

The managers believe that their new organic farm would raise the cost per bird to $4, while raising the average selling price to $8.50 per bird from $6.50 per bird now. However, due to the centralized structure of the is operation, shipping expenses will likely decrease from $1.00 per bird to $0.75. The firm feels it will need to increase its inventory of live birds by $15,000, and it will cost $150,000 to purchase the land, and $300,000 to construct the buildings and purchase equipment. In addition, labor expense is expected to rise by $130,000 per year.

The buildings and equipment will be depreciated using the straight-line method over five years to a salvage value of $100,000. After five years, the company will sell the farm for $300,000 (Base case estimate is $100,000 for the buildings and equipment and $200,000 for the land). The firms marginal tax rate is 35% and average tax rate is 28%, and be sure you remember that land is not depreciable.

Given that, construct a spread sheet that calculates the initial outlay, after tax cash flows, and terminal cash flow for the project. Then find NPV (use 5% discount rate) and IRR. Using that, decide if this is a go or no go project. Then do any other analysis you think might be useful to the CEO. When complete, construct a memo that will inform the CEO of your findings and your suggested course of action.

Petaluma Chicken
	Situation	New Situation
Chickens per Year	500,000	500,000
Cost per Chicken	$3.00	$4.00
Shipping Cost per Chicken	$1.00	$ 0.75
Selling Price	$6.50	$8.50
Total Cost per Chicken	$4.00	$4.75	Add cost and shipping
Additional Gross Profit per Chicken		$1.25	Subtract old price minus old cost from new price minus new cost
Investment in Additional Chickens		$15,000	One time investment in increased inventory
Land Cost		$150,000
Buildings Cost		$300,000
Labor Expense		$130,000
Depreciation Salvage Value (Buildings)		$100,000
Annual Depreciation Expense		$ 40,000.00	Cost - salvage value divided by years
Actual Salvage Value (Land)		$200,000
Actual Salvage Value (Buildings)		$100,000
Life of Project		5.00
Tax Rate		35%
Weighted Average Cost of Capital		5%
Cash Flow
Initial Outlay	$465,000	Cost of land, buildings and increase in inventory
Annual After-tax Cash Flow	$387,750.00	Chickens per year times additional profit minus labor + depreciation.
Then multiply by 1-tax rate to get after tax net income then add back depreciation as it's not cash
Terminal Cash Flow	$47,500	Sell off land, buildings and inventory while accounting for taxes
Land Cost	$150,000
Land Salvage Value	$200,000
Tax	$17,500
Gain on Sale	$32,500
Building Salvage Value	$100,000
Depreciation Building	($100,000)
Tax	$0
Gain on Sale	$0
Salvage Value Inventory	$15,000
So actual salvage value building minus any taxes due on the difference of the actual salvage value and the depreciated salvage value.
Plus the actual salvage value on the land minus any taxes due on the difference of the actual salvage value and the land cost
Plus selling off the increased inventory (sold at same price as bought)
Period	Cash Flow	PV Factor @ 5%	Present Value	Initial outlay from above
0	($465,000)			$465,000
1	$387,750.00		$ 495,000.00	After tax CF from above
2	$387,750.00			After tax CF from above
3	$387,750.00			After tax CF from above
4	$387,750.00			After tax CF from above
5	$435,250.00		$315,000	After tax CF from above plus the terminal cash flow from above
Profitability Measures
Payback Period	1.20
NPV	$1,250,972.07
IRR	79%