Sunshine Ltd. is a privately owned business in Brisbane that operates 100 fruit juice bars in Queensland. It achieved strong results last year, with record total sales of AUD 200 million. Its cost of goods sold (COGS) then was 70% and its owners have indicated that going forward, it will be able to maintain this level of COGS for any new shop that it plans to open. The strong results were down in large part to the company's aggressive marketing efforts. This equally among all of its juice bars. Čurrently, with the summer coming soon, Sunshine Ltd. is considering opening a new juice bar on UQ Refectory to cater specifically to UQ students and staff. This investment will cost a total of AUD 1.5 million to establish. Sunshine has estimated that it will be able to achieve the same sales revenue for the new bar and operate this bar for 5 years. Sunshine Ltd. is subject to a 30% corporate tax rate. Sunshine Ltd. has asked you, a finance expert, to analyse this potential project. a) Estimate the after-tax cash flows for the first 5 years of operations for this new juirce bar project. b) If the discount rate is 8.0%, what is the NPV of this project? Should Sunshine accept this project? Show your workings and round your final answers to nearest dollars.
Sunshine Ltd. is a privately owned business in Brisbane that operates 100 fruit juice bars in Queensland. It achieved strong results last year, with record total sales of AUD 200 million. Its cost of goods sold (COGS) then was 70% and its owners have indicated that going forward, it will be able to maintain this level of COGS for any new shop that it plans to open. The strong results were down in large part to the company's aggressive marketing efforts. This equally among all of its juice bars. Čurrently, with the summer coming soon, Sunshine Ltd. is considering opening a new juice bar on UQ Refectory to cater specifically to UQ students and staff. This investment will cost a total of AUD 1.5 million to establish. Sunshine has estimated that it will be able to achieve the same sales revenue for the new bar and operate this bar for 5 years. Sunshine Ltd. is subject to a 30% corporate tax rate. Sunshine Ltd. has asked you, a finance expert, to analyse this potential project. a) Estimate the after-tax cash flows for the first 5 years of operations for this new juirce bar project. b) If the discount rate is 8.0%, what is the NPV of this project? Should Sunshine accept this project? Show your workings and round your final answers to nearest dollars.
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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Transcribed Image Text:Question 6
Sunshine Ltd. is a privately owned business in Brisbane that operates 100 fruit juice bars in
Queensland. It achieved strong results last year, with record total sales of AUD 200 million.
Its cost of goods sold (COGS) then was 70% and its owners have indicated that going forward,
it will be able to maintain this level of COGS for any new shop that it plans to open.
The strong results were down in large part to the company's aggressive marketing efforts. This
marketing compaign cost the company a total of AUD 200,000 per year, which is shared
equally among all of its juice bars. Currently, with the summer coming soon, Sunshine Ltd. is
considering opening a new juice bar on UQ Refectory to cater specifically to UQ students and
staff. This investment will cost a total of AUD 1.5 million to establish. Sunshine has estimated
that it will be able to achieve the same sales revenue for the new bar and operate this bar for 5
years. Sunshine Ltd. is subject to a 30% corporate tax rate. Sunshine Ltd. has asked you, a
finance expert, to analyse this potential project.
a) Estimate the after-tax cash flows for the first 5 years of operations for this new juirce
bar project.
b) If the discount rate is 8.0%, what is the NPV of this project? Should Sunshine accept
this project?
Show your workings and round your final answers to nearest dollars.
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