Appendix 4: Analysis of Alternative Project Blue Wave

Figure 1: Annual Increase in CM and Cash Flows

Increased annual yield (5,100,000-3,800,000) 1,300,000kg
Revenue per kg (average) $4.20
Variable cost per kg 1.93
CM per kg $2.27
Current CM per kg (excluding Site 3 loss of fish) 1.94
Total increase in CM per kg $0.33
Expected total CM (5,100,000 x 2.27) 11577000
Current total CM (3800000x1.94) 7372000
Increase in annual CM before taxes 4205000
Income Taxes (30%) 1261500
Increase in annual cash flows after taxes 2943500
Figure 2: Gross Profit Margin
New gross profit per kg = Revenue - Full cost = 4.20 - 2.91 = 1.29
Gross profit margin percentage = Gross profit/revenue = 1.29/4.20 = 30.7%
Therefore: The projet will meet the bank's constraint of minimum gross margin of at least 20%
Figure 3: Financing Required
$1.2 million in each of Years 1 and Year