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 $28.00 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 $1.04 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.08 million per year and cost $2.46 million per year over the 10-year life of the project. Marketing estimates 16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00 %. The WACC is 11.00%. Find the NPV (net present value).
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 $28.00 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 $1.04 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.08 million per year and cost $2.46 million per year over the 10-year life of the project. Marketing estimates 16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00 %. The WACC is 11.00%. Find the NPV (net present value).
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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![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 $28.00 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 $1.04 million at the beginning of the
project and will be recovered at the end. The new diet drink will produce revenues of $9.08 million per year and cost $2.46 million per year over the 10-year life of the project. Marketing estimates
16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00 %. The WACC is 11.00%. Find the NPV (net present value).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdf988e95-fad0-458d-a41c-d96a2e6c9f4f%2Ffe6e2f3f-0cea-4f9e-a6cd-9cefa8aa81ab%2F6bmfbxr_processed.png&w=3840&q=75)
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 $28.00 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 $1.04 million at the beginning of the
project and will be recovered at the end. The new diet drink will produce revenues of $9.08 million per year and cost $2.46 million per year over the 10-year life of the project. Marketing estimates
16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00 %. The WACC is 11.00%. Find the NPV (net present value).
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