Budweiser is thinking about making wine… Expected sales per unit 290,000 bottles sold in the first...

Budweiser is thinking about making wine…

Expected sales per unit
- 290,000 bottles sold in the first year
- Sales revenue declines 10% per year (ie, sales growth = -10%)
Proposed selling price per bottle = $5.10
Variable cost per bottle = $2
Fixed costs = $270K/year in maintenance and labor
Budweiser also expects to lose $300K pretax per year (revenue net of expenses) from beer sales as people switch from beer to wine
Working capital necessary = $50K
Wine-making equipment
- would cost $750K, plus $50K in modifications required on the assembly line (included in depreciable basis)
- depreciated 5-year MACRS
After five years, project ends as everyone realizes Budweiser wine is disgusting
- all remaining working capital recouped
- wine-making equipment sold for $400,000
Tax rate = 30%
Assume any negative taxes can be treated as an immediate tax credit. (=treat negative taxes as a positive CF.)

Required return = 10%.

Calculate the NPV and the IRR of the project. Should the company pursue this project?

Expert Solution

jeff jeffy answered 2 years ago

Budweiser is thinking about making wine… Expected sales per unit 230,000 bottles sold in the first...

Budweiser is thinking about making wine… Expected sales per unit 230,000 bottles sold in the first year. Sales revenue declines 10% per year (ie, sales growth = -10%) Proposed selling price per bottle = $5.10. Variable cost per bottle = $2 Fixed costs = $230K/year in maintenance and labor Budweiser also expects to lose $300K pretax per year (revenue net of expenses) from beer sales as people switch from beer to wine Working capital necessary = $50K Wine-making equipment would...

Budweiser is thinking about making wine… • Expected sales per unit o 260,000 bottles sold in...

Budweiser is thinking about making wine… • Expected sales per unit o 260,000 bottles sold in the first year o Sales revenue declines 10% per year (ie, sales growth = -10%) • Proposed selling price per bottle = $5.20 • Variable cost per bottle = $2 • Fixed costs = $250K/year in maintenance and labor • Budweiser also expects to lose $300K pretax per year (revenue net of expenses) from beer sales as people switch from beer to wine •...

Every Easter, an average of 960,000 hams and 90,000 bottles of wine are sold per state....

Every Easter, an average of 960,000 hams and 90,000 bottles of wine are sold per state. Importantly, the population variance/standard deviation is not known. Below is the number of hams and bottles of wine sold in each of the ten northeast states. State # of Hams # Bottles of Wine Maine 199,700 45,900 Vermont 93,800 25,500 New Hampshire 200,200 60,000 Massachusetts 1,020,100 294,250 Rhode Island 200,000 74,000 Connecticut 525,100 111,250 New York 2,962,500 780,600 Pennsylvania 1,920,200 480,000 New Jersey 1,341,600...

If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net...

If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000 I know the answer is true but I don't know how/why. Can you please show your calculation? Thank you

A local winery bottles thousands of bottles of wine per season. The winery has a machine...

A local winery bottles thousands of bottles of wine per season. The winery has a machine that automatically dispenses the amount of wine per bottle before aging. Each season the wine maker randomly samples 45 bottles of wine to ensure the amount of wine per bottle is 750 ml. If there is evidence that the amount is different than (less or more than) 750 ml then the winery will need to evaluate the machine and perhaps rebottle or consider selling...

Phillip, the proprietor of a vineyard, estimates that the first 9400 bottles of wine produced this...

Phillip, the proprietor of a vineyard, estimates that the first 9400 bottles of wine produced this season will fetch a profit of $7 per bottle. However, the profit from each bottle beyond 9400 drops by $0.0004 for each additional bottle sold. Assuming at least 9400 bottles of wine are produced and sold, what is the maximum profit? (Round your answer correct to the nearest cent.) _____$ What would be the profit/bottle in this case? (Round the number of bottles down...

13).Sales is $90 per unit; cost of goods sold is $30 per unit; selling and administrative...

13).Sales is $90 per unit; cost of goods sold is $30 per unit; selling and administrative expenses are $4 per unit and $25,000 per month. The company produced 500 units. Gross margin equals: a).$30,000 b).$45,000 c).$28,000 d).$3,000 14).Estimates: 30,000 labor hours; 1,400 machine hours; $40,000 fixed overhead; $3 variable overhead per labor hour; $4 variable overhead per machine hour. Total estimated overhead is: a).$135,600 b).$164,200 c).$95,600 d).$130,000 15).Sarah's Soda applies overhead based on departmental overhead rates. Job A1 had $3,900...

If the government imposes unit sales tax (i.e., $ tax per unit sold) on a product,...

If the government imposes unit sales tax (i.e., $ tax per unit sold) on a product, which one, demand, or supply will shift? Increase or decrease? Will the new tax cause "disequilibrium"? Please state clearly about the shift (leftward or rightward) and the equilibrium price and quantity change. No graph is required.

Traditionally, wine has been sold in glass bottles with cork stoppers. The stoppers are supposed to...

Traditionally, wine has been sold in glass bottles with cork stoppers. The stoppers are supposed to keep air out of the bottle because oxygen is the enemy of the wine. Particularly red wine. Recent research appears to indicate that metal screw caps are more effective in keeping air out of the bottle. However, metal caps are perceived to be inferior and usually associated with cheaper brands of wine. A random sample of 130 people who drink at least one bottle...

There are two machines available for cutting corks intended for use in wine bottles. The first...

There are two machines available for cutting corks intended for use in wine bottles. The first produces corks with diameters that are normally distributed with mean 3 cm and standard deviation 0.08 cm. The second machine produces corks with diameters that have a normal distribution with mean 3.04 cm and standard deviation 0.04 cm. Acceptable corks have diameters between 2.9 cm and 3.1 cm. What is the probability that the first machine produces an acceptable cork? (Round your answer to...

Question