50.1K

Verified Solution

Link Copied!

Quantitative Problem: Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. SSC is considerng the development of a new line of high-protein energy smoothies. 55C's CFO has collected the following intormation regarding the proposed project, which is expected to last 3 years: - The project can be operated at the cornpany's Charieston plant, which is currently vacant. - The project will require that the company spend 54.1mmilion today (t=0) to purchase additional equipment, This equipment is elig ble for 100% bonus depreciation, so the equipment is fully depreciated at the time of its purchase. The company plans to use the equipment for all 3 years of the project. At t=3 (which is the project's last year of aperation), the equipment is expected to be sold for $1,500,000 before taxes. - The project will require an increase in net operating working captal of $730,000 at t=0. The cost of the working capital wil be fully recovered at t=3 (which is the project's last year of operation). - Expected High-protein energy smoothie sales are as folows: Year Sales 1$2,100,000 28,000,000 3,3,150,000 - The projects annual operating costs (excluding depreciation) are expected to be 60% of sales, - The company's tax rate is 25%. - The company is extromely profitable; so if any losves de incurred from the highprotein energy smootrie preject they can be used to partially olfset taxes paid on the company's other projects. (That is, assume that if there are any tax credits related to this project they can be wsed in the year they occur)) - The preject has a wace =10.09. What is the project's expected NPV and tRE? Round your answers to 2 decimal places. Do not round your intemediate calculations. NFV IRR Should the firm accept the project

Answer & Explanation Solved by verified expert

See Answer