Please correct answer and don't used hand raiting and don't used Ai solution Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plantand the purchase of the equipment necessary to produce the diet drink will cost $26.00million. The plant and equipment will be depreciated over 10 years to a book value of $3.00million, and sold for that amount in year 10. Net working capital will increase by $1.12 millionat the beginning of the project and will be recovered at the end. The new diet drink willproduce revenues of $8.71 million per year and cost $2.47 million per year over the 10-year lifeof the project. Marketing estimates 19.00% of the buyers of the diet drink will be people whowill switch from the regular drink. The marginal tax rate is 31.00%. The WACC is 12.00%. Findthe IRR (internal rate of return).

annual operating cash flows:Revenues: $8.71 millionCosts: $2.47 millionDepreciation: (26−3)/10=2.3…

Answered: Caspian Sea Drinks is considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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