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Coco Mix

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Submitted By bogar90706
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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 conducted test marketing in Dallas at a cost of $800,000. The results of the test market were very encouraging and B-S has decided to launch a product to its current market and to expand to Texas. The name of the new juice will be CocoMix. Exhibit 2 provides an earlier version of the prototype for the product that was called CocoCasa. The plan is to keep most of the design for CocoMix. The applicable tax rate is 40% and the Comptroller has determined that the appropriate discounting rate for this type of project is 10%. The production process for CocoMix is very specialized but some production elements are similar to the ones used for existing drinks and thus both products will share some of the same equipment. The production process will be housed in an area not currently used by B-S. However, it is estimated that more distribution trucks will be necessary for a cost of $1.0 million and necessary new equipment will cost $0.8 million. These investments qualify for a Investment Tax Credit (ITC) of $10,000 which the firm can choose to take it all at once in year zero or distribute it equally over the life of the project. These are the only

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