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.
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.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Question
![#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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F299a2b55-e707-4a67-adcf-a5c81d17be4c%2Ff72aa752-8a1d-4cab-934c-a0ea49765982%2Frpihv6_processed.png&w=3840&q=75)
Transcribed Image Text:#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.
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