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3. Homestead Agriculture Inc. is considering expanding into a new market. The company. which currently packs and sells strawberries is considering packing and selling bell peppers which they will grow on site. Fixed costs per year including insurance, etc., will cost $16,000 per year. The packing equipment for the facility will cost $210,000 and shipping and installation costs for the equipment are $9.000. Depreciation is MACRS scale for a 7 year asset (14%, 24%, 17%, 12%, 9%, 9%, 9%, 6%). It is estimated the equipment will have a salvage value and can be sold for $30,000 at the end of the year when they expect to shut down. In order to operate the facility the company will have to train employees at an after- tax cost of $4,000 and incur additional net operating working capital in year in the form of inventories boxes, etc., of $2,000. At that point, net working capital each year is equal to 0.6% of gross revenue. The correct amount of working capital will be returned at the end of the project. In addition, the company could rent the land to other farmers for $6,000 per year. The company's marginal tax rate is 34%, and they expect the following units sold, etc. In average growing conditions, for the first year, they expect: Year b oxes sold/yr Revenue per box($) 160,000 9.25 V. Costs (expenses) per box(S) Growing 5.25 Boxes 1.75 Staples 0.20 Labor& elec. 0.50 Other 0.10 The growing cost is a catch all that includes fuel costs, fertilizer, pesticides, labor, seeds, etc. For the next 6 years (to year 7), the company expects the total variable costs per unit to rise by 2.50% per year. In agriculture, it is hard to estimate an increase in units sold, as that depends on the weather and crop production. Revenue per unit is nearly impossible to estimate as it depends on the total supply across the nation and Mexico. A box is 1 and 1/9 bushel. A) (5 points) What is the initial outlay for this project? B) (7 points) What is the terminal value cash flow? C) (8 points) Calculate the incremental net cash flow for year 1 only

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