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
Problem 1PS
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Question

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 $1.00 million, and
sold for that amount in year 10. Net working capital will increase by
$1.29 million at the beginning of the project and will be recovered at the
end. The new diet drink will produce revenues of $9.46 million per year
and cost $1.84 million per year over the 10-year life of the project.
Marketing estimates 13.00% of the buyers of the diet drink will be
people who will switch from the regular drink. The marginal tax rate is
22.00%. The WACC is 15.00%. Find the NPV (net present value).
Submit
Answer format: Currency: Round to: 2 decimal places.
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