#3Caspian Sea Drinks is considering the production of a diet drink. The expansion of theplant and the purchase of the equipment necessary to produce the diet drink will cost$26.00 million. The plant and equipment will be depreciated over 10 years to a book valueof $2.00 million, and sold for that amount in year 10. Net working capital will increase by$1.04 million at the beginning of the project and will be recovered at the end. The new dietdrink will produce revenues of $9.16 million per year and cost $1.82 million per year overthe 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drinkwill be people who will switch from the regular drink. The marginal tax rate is 33.00%. TheWACC is 15.00%. Find the NPV (net present value).SubmitAnswer format: Currency: Round to: 2 decimal places.

The objective of the question is to calculate the Net Present Value (NPV) of the project for…

Answered: #3 Caspian Sea Drinks is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.08 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.64 million per year and cost $1.58 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 21.00%. The WACC is 10.00%. Find the NPV (net present value). Answer format: Currency: Round to: 2 decimal places.
1. Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.82 million. The marketing department predicts that sales related to the project will be $2.52 million per year for the next four years, after which the firm expects to sell it for $500,000. The machine is a five-year class asset and will be depreciated down to zero over five years under the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $200,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The required rate of return (or discount rate) for the project is 12.5 percent. Compute the NPV, IRR, and payback period of the project. The firm’s acceptable payback period is 3 years. Is this project acceptable to the firm?
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
3. Power Coal Mine Bhd is considering a new mining pit to increase its productionoutput. The company will have to pay $25 million for the rights to mine on thegovernment land. The infrastructure development costs will amount to another $12million. It is anticipated that the mine should generate annual net revenue of $10million for 15 years. When the mine is closed at the end of the fifteenth year, $10million will be spent for reclamation work. The company’s MARR is 10%per year.a.Draw a cash flow diagram for the above proposal.b. Compute the equivalent present worth (PW) of the proposal.c. Determine the minimum annual net revenue required for the proposal tobreakeven. Assume that costs of rights to mine, development, andreclamation remain the same.
a) The Coca-Cola Company are looking to go for a project that will require an initial investment of $ 500,000 and an annual expenditure of $ 50,000 from year one till the 5th year and annual expenditure of $ 70,000 from the 6th year till the end of this project. The project will provide revenue of $ 100,000 annually but will decrease by $ 1000 each year till the end. The project has a life time of 10 years. Find out the PEC (present equivalent cost) if the nominal interest rate is 15%. b) If you borrowed $10,000 with a promise to make 10 equal payments starting 1 year from now, calculate the amount of payments if the interest rate were 8% per year compounded weekly?
Give typing answer with explanation and conclusion Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.35 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.15 million per year and cost $1.93 million per year over the 10-year life of the project. Marketing estimates 10.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 32.00%. The WACC is 13.00%. Find the NPV (net present value).
#4 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.48 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.35 million per year and cost $1.56 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 10.00%. Find the IRR (internal rate of return). Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
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#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.37 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.24 million per year and cost $2.26 million per year over the 10-year life of the project. Marketing estimates 20.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 33.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
FCF and NPV for a project: Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12 million. This investment will consist of $2 million for land and $10 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5 million, which is $2 million above book value. The farm is expected to produce revenue of $2 million each year, and annual cash flow from operations equals $1.8 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.

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