New England Seafood Company Essay

2919 Words Mar 4th, 2014 12 Pages
Case 16

New England Seafood Company

Prepared for:
New England Seafood Company’s Senior Management

Prepared by:
New England Seafood Company’s Senior Management


February 6, 2014

Executive Summary

New England Seafood Company executives face a potential two-stage plan to move into the freshwater catfish market because of the banned oyster harvesting along much of the Atlantic and Gulf Coasts, and increased competition from foreign producers. These factors have resulted in significantly lower yields for New England Seafood. In order to stay in business, New England Seafood Company needs to look at harvesting and processing something other than seafood. New England Seafood Company looks to
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The firm has already decided to build the facility in Pascagoula, Mississippi if they do go through with the plan. The firm already owns a tract of land in the area which cost $500,000 several years ago. It can now be sold for $1 million net of taxes and fees or utilized for the catfish project. If used for the catfish project additional land would have to be obtained for the use of the Gulf Shrimp Division’s future needs in 5 years. The estimated future cost of this land in 5 years is $1.5 million or the firm could obtain a $100k option to purchase a similar site for $1.3 million in 5 years.
New England Seafood Company could start construction in 1995 for the cost of $4 million. The plant itself will fall into the MACRS 31.5 year class depreciation schedule beginning in 1997. The firm estimates that at the end of 2001, the land would have a market value of $2 million and the building would have a market value of $3 million. The equipment necessary for the plant would be obtained in 1996 for $6 million. This equipment would fall into the MACRS 7-year depreciation schedule. The depreciation would begin in 1997 with a residual value of only $500,000 after 5 years of use. The equipment would be purchased at the end of 1995 and processed and obtained in 1996. New England Seafood Company has a federal-plus-state tax rate of 40% and faces a weighted average cost of capital

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