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 $1.17 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.56 million per year and cost $1.61 million per year over the 10-year life of the project. Marketing estimates 19.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 31.00%. The WACC is 14.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
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 $1.17 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.56 million per year and cost $1.61 million per year over the 10-year life of the project. Marketing estimates 19.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 31.00%. The WACC is 14.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text: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
$1.17 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues
of $8.56 million per year and cost $1.61 million per year over the 10-year life of the project. Marketing estimates 19.00%
of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 31.00%. The
WACC is 14.00%. Find the NPV (net present value).
Submit
Answer format: Currency: Round to: 2 decimal places.
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