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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 $1.33 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.36 million per year and cost $1.65 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 27.00%. The WACC is 13.00%. Find the NPV (net present value).

Answer Format: Currency: Round to: 2 decimal places.

Solutions

Expert Solution

NPV = $4.45 million

(Note: all cells in the following image are done in $ millions, unless otherwise stated)

jeff jeffy answered 1 year ago
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