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# Tomato Case Study

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“Tomato Light” Case study
Financial Analysis course

“Tomato World” company is a leading producer of tomato products. The firm was founded in 1980 by Jim Draney who was a successful tomato farmer in Kansas. At the beginning of his career, Jim was selling his produce to local grocery stores but later he expanded to the making of tomato paste, concentrate sauce and juice which were distributed throughout the States.

The firm‟s management is currently evaluating a new product –“tomato light” juice. After spending \$18,000 in marketing research, the firm found that there is a significant part of the market that although likes the tomato, does not consume tomato juice because of its high concentration of sugar. The new product although more expensive than the existing competing brands offers 35 percent less calories with no sugar or other additives. As a recent MBA graduate, you are working in the finance department and you are asked to analyze this project, along with two other potential investments, and then present these findings to the company‟s executive committee chaired by Jim Draney himself.
Production facilities for the Tomato Light Juice product would be set up in an unused section of the company‟s main plant. Relatively inexpensive, used machinery with an estimated cost of only \$550,000 would be purchased, but shipping costs to move the machinery to company‟s plant would total \$22,000, and installation charges would add another \$50,500 to the total equipment cost. Further “Tomato light” inventories ( raw materials, work-in-process, and finished goods) would have to be increased by \$11,000 at the time of the initial investment. The machinery has a remaining economic life of 4 years, and the company has obtained a special tax ruling that allows it to depreciate the equipment under the MACRS method with depreciation allowances of 0.33, 0.45, 0.15, and 0.07 in years 1 through 4 respectively. The machinery is expected to have a salvage value of \$80,000...

• Submitted by: hakkthan
• on February 28, 2013
• Length: 2,748 words
• Views: 370
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