Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

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 $1.28 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 $2.12 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 20.00%. The WACC is 10.00%. Find the NPV (net present value).

Expert Solution

NPV is calculated in the table as shown below -

Calculation in the above table is shown below -

NPV is calculated after reducing the cannibalization effect of 20% as shown in the above table.

Thank you. I hope it will help you in your task.

jeff jeffy answered 1 year ago

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

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Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

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 $24.00 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 $1.36 million at the beginning of the project and will be recovered at the end. The new...

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

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 $23.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.20 million at the beginning of the project and will be recovered at the end. The new...

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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 $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.23 million at the beginning of the project and will be recovered at the end. The new...

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Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

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