I would like the same person as last time.
Anthony’s Orchard’s gross profit performance will be significantly influenced by its apple orchard field and warehouse operations. Currently, the majority of its apples are being purchased off-site at market prices and then processed into finished retail products since the current apple orchards do not produce enough apples to meet demand. The apple orchards on site are in early stages of maturity and are only suitable for “you pick” sales. In 2–3 years, these apple orchards will mature and produce the majority of apples needed for all its wholesale and retail markets. For this Assignment, you will undertake a critical financial analysis of the baseline gross profit financial projections for Anthony’s Orchard to provide a financial report that integrates performance metrics with budgeted sales and margins and includes some “what if” scenarios. Financial data and templates are provided in the internal file share area for Week 4 in the Anthony’s Orchard website. The financial report will require you to do the following: Validate the gross profit financial projections using the templates provided in the internal file share area for Week 4 in the Anthony’s Orchard website. Prepare a 1-page summary of sales with a focus on key metrics and trends. Comment on any unusual variations that suggest an error or irregular trend that may require further analysis at a later date. “What If Analyses” Explain how changes in the sales mix could maximize profits. In this scenario, "you pick" sales increased by $1 million and prepared product sales decreased by $1 million. Assume that current year product gross profit percentage rates remained unchanged. Explain how a 2% across-the-board selling-price increase would affect budget sales and margin. In this scenario, assume no changes in market demand or unit-level sales projections as a result of price increase. Refer to the template “Cost of Sales Current Year Forecast and Unit Metrics,” located in the Anthony's Orchard website, and explain how cost of sales and gross profit is computed. Ending Inventory is a key part of Cost of Sales determination. How would Ending Inventory be determined on a monthly basis and why is it deducted to total purchasing cost? How would a 10% increase in labor rates affect overall gross profit? What is the financial impact on the annual budget cost of sales and gross profit if on-site apple orchards were fully mature and the apples' costs were 5% lower than the current year's cost? Incorporate all the above "What If" changes into the 5-year financial plan that was presented in Week 2. Then, compare the 5-year plan to the board of director targets provided in Week 1. Also update the 5-year plan for the financial result of the capital project decision made in Week 3. What are the remaining gaps in sales, income, and ROI that still need to be addressed? Summarize the results of the above analysis in a 4- to 5-page executive summary. Insert snapshots of your financial analyses, as needed, in the Word document. Incorporate metrics and the financial analyses in the content section as needed. Templates C7–C11 in the internal file share area for Week 4 in the Anthony's Orchard website contain metrics and financial analyses. Capital Budgeting Report Project 1 The project 1 talks about proposal to buy land for Apple Orchard Expansion. The expected life of the project is estimated to be 10 years. The management calculates the Net Present Value for the project which comes out to be –$78,174 and hence recommends to the board that the project should not be taken as the net present value of the project is negative. A negative NPV means that the cash flows generated from the project over its life are negative and it would lead to reduction in the shareholders wealth. The initial cost of land along with necessary setup is quite high for the project. The project requires initial investment to buy the land along with setting up an irrigation system, trellis system and orchard machinery, building and equipment. The total initial investment for the project is $1,932,090. The land is estimated to be sold at a higher price at the end of the projects’ life leading to a capital gain of $ 150,000. The major concern area for the management should be the operating expenses associated with the project. Upon financial evaluation of the project it is found that the operating expenses are very high consistently throughout the life of the project. Moreover the operating expenses in the first five year of the project are much higher as compared to the rest of the life of the project. It leads to reduced cash flows in the earlier year which leads to fall in NPV because cash today is better than cash in future. The project is not expected to generate any revenues in the first two years of its incorporation. With higher operating expenses in the initial years of the project and no operating revenues, the net present value takes a downturn for the project. Even in the next three years the revenues are significantly lower as compared to the operating expenses. It is only after the project completes five years the operating revenues are greater than the operating expenses. The concept of cash flows plays a major role in capital budgeting projects and cash flows today are always more valuable than cash flows in the later years. It is estimated that the operating revenues in the last five years will be significantly higher than the operating expenses. Due to high initial investment and an operating loss in the first four years of the project the net present value of future cash flows from the project comes out to be negative. The management is right in its recommendation but stating not to take up the project as it will lead to negative cash flows. The payback period of the project is calculated to be 5.733 years and the discounted payback period is calculated to be 6.031 years. It suggests that the project takes up more than half of its life to recover the investment. There are just costs that will be incurred for more than half of its life. Hence it is not advisable for the company to take up this project. Project 2 The second projects is about the about press. The life of the project is estimated to be of 10 years and this report talks about the recommendations to be made by the management on the basis of net present value whether to take up the project or not The project requires initial investment to buy the land along with setting up an irrigation system, trellis system and orchard machinery, building and equipment. The cost of land is $13500/ acre. The total initial investment for the project is $1,500,000. The project estimated requirement is of 10500 apple bins per year starting from year 1. The case price is taken to be $42. The revenues are estimated to be constant at $67, 20, 000 starting from year 1 till the life of the project. In the initial year 157654 cases are estimated to be produced resulting in estimated revenues of $6, 621, 468. The gross profit is estimated to be 10.75% of the revenues. The project also requires selling and distribution expenses to be incurred. It is estimated that the selling and distribution expenses accounts for 5% of the total revenues. The selling and distribution expenses are less than the profit margin which will lead to positive cash flows year on year. The cash flows are discounted at a rate of 8.00% per annum. Weighted Average Cost of Capital (WACC) is considered as the discount rate. The Net Present Value of the expected future cash flows discounted at 8.00% per annum is estimated to be $617,826. The project will generate large positive cash flows year on year. Also the expected cash flows are stable and help in better understanding the future prospects of the project. A positive net present value of estimated future cash flows means that it would lead to increase in Free Cash Flow to Firm (FCFF) which will lead to an increase in the shareholders value. The estimated payback period of the project is estimated to be 2.896 years and the discounted payback period is estimated to be 3.434 years. This suggests that the project will be able to recover the initial investment within the first four years of the project. Moreover the Initial Rate of Return (IRR) is 32.45% per annum which is significantly greater than the required rate of return. The project is profitable in all aspects. All the capital budgeting models which includes NPV method, payback period, discounted payback period and the IRR suggest that the project should be undertaken by the company. The project will produce positive cash flows in future for the company and thus increase the free cash flow to firm and ultimately lead to the increase in shareholders’ value. Hence the project should be undertaken by the company. Anthony’s Orchard’s gross profit performance will be significantly influenced by its apple orchard field and warehouse operations. Currently, the majority of its apples are being purchased off-site at market prices and then processed into finished retail products since the current apple orchards do not produce enough apples to meet demand. The apple orchards on site are in early stages of maturity and are only suitable for “you pick” sales. In 2–3 years, these apple orchards will mature and produce the majority of apples needed for all its wholesale and retail markets. For this Assignment, you will undertake a critical financial analysis of the baseline gross profit financial projections for Anthony’s Orchard to provide a financial report that integrates performance metrics with budgeted sales and margins and includes some “what if” scenarios. Financial data and templates are provided in the internal file share area for Week 4 in the Anthony’s Orchard website. The financial report will require you to do the following: Validate the gross profit financial projections using the templates provided in the internal file share area for Week 4 in the Anthony’s Orchard website. Prepare a 1-page summary of sales with a focus on key metrics and trends. Comment on any unusual variations that suggest an error or irregular trend that may require further analysis at a later date. “What If Analyses” Explain how changes in the sales mix could maximize profits. In this scenario, "you pick" sales increased by $1 million and prepared product sales decreased by $1 million. Assume that current year product gross profit percentage rates remained unchanged. Explain how a 2% across-the-board selling-price increase would affect budget sales and margin. In this scenario, assume no changes in market demand or unit-level sales projections as a result of price increase. Refer to the template “Cost of Sales Current Year Forecast and Unit Metrics,” located in the Anthony's Orchard website, and explain how cost of sales and gross profit is computed. Ending Inventory is a key part of Cost of Sales determination. How would Ending Inventory be determined on a monthly basis and why is it deducted to total purchasing cost? How would a 10% increase in labor rates