Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer receive any cash flows from normal operating in the next 2 years. After recieve the first after-tax cash flows that generate from normal operation, the firm can sell the assets that related to the project for $3.5 million (after taxes) immediately after recieve the first after-tax cash flows that generate from normal operation Please show me the method how to find the expected NPV of the project, preferably explain with diagram of decision tree. . Don’t forget to concern about time value of money in each step and the option that the firm can abandon the project after know whether the project poor or good in the first year Thank you so much for your helping!
Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project.
The project would require a $4 million investment outlay today
The after-tax cash flows would depend on consumers’ demand.
There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years.
There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years.
The project is riskier than the firm's other projects, so it has a WACC of 12%.
- The firm will know whether the project is success or not after receiving first year's cash flows from normal operating..
- After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project.
- If the firm decides to abandon the project, the company will no longer receive any cash flows from normal operating in the next 2 years. After recieve the first after-tax cash flows that generate from normal operation, the firm can sell the assets that related to the project for $3.5 million (after taxes) immediately after recieve the first after-tax cash flows that generate from normal operation
Please show me the method how to find the expected
Don’t forget to concern about
Thank you so much for your helping!
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