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Jane is a project manager for Jackson Drinks Inc. She is evaluating the feasibility of project...

Jane is a project manager for Jackson Drinks Inc. She is evaluating the feasibility of project to construct a plant to produce a new health drink. She has the following information.

·         Sales of 500,000 bottles/year with a price of $6/bottle.

·         Variable cost per bottle is $3 per bottle.

·         Fixed costs are $500,000 per year.

·         Project life is 5 years.

·         Initial Investment (cash outlay) is $2,000,000.

·         Depreciation is $400,000/year.

·         Additional net working capital of $1,000,000 required. Same for all periods.

·         The firm’s required return is 16%.

·         The tax rate is 30%.

a.       What is the OCF in year 1 to year 5?

b.      What is the (Free) Cash Flow in year 1 to year 5?

c.       What is the NPV of the project? Should Jackson Drinks Inc. accept or reject the project?

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jeff jeffy answered 1 year ago
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