Bay Path Cranberry Products is a leading producer of cranberry juice, canned cranberry sauce, fresh berries, and sweetened dried cranberries, with production and
processing facilities in Massachusetts and Wisconsin. Sales of traditional products such as fresh berries and canned cranberry juice have been declined for a long
time; the fastest-growing products have been juices and dried fruit, especially “light” and sugar-free juices. Industry sponsored advertising has highlighted
research showing that cranberries are rich in antioxidants and other phytonutrients that may protect against heart disease, cancer, stomach ulsters, gum and
urinary tract infections, and even such age-related afflictions as loss of coordination and memory. These trends confirm the marketing department’s belief that Bay
Path should aggressively pursue the same health-conscious consumers who purchase certified organic products. Despite the growing popularity of organic food
products and the demonstrated willingness of affluent consumers to pay a premium price for them, the cranberry industry has been slow to enter the field. Bay Path
executives have now decided to introduce an organic line of products, starting with juice and blended juice. This new line will become their highest strategic
priority for the next two years. The introduction of certified organic products will be expensive. Preliminary estimates indicate that Bay Path will need to invest
$80 million in production and processing facilities. The company hopes to finance the expansion by using $30 million of its own liquid assets and $50 million in
new debt in the form of bonds with a maturity if 20 years. Bay Path expects the bonds to receive a rating of Aa1 or better from Moody’s. For all questions, assume
par value is $1,000 and semi-annual bond interest payment.
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