"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 $1.07 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.23 million per year and cost $2.12 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 25.00%. The WACC is 15.00%. Find the IRR (internal rate of return)."
Round to 4 decimal places, and % sign is required
| Profit = (revenues-sales)*(1-switch%) |
| =(9230000-2120000)*(1-0.17) |
| 5901300 |
| Time line | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| Cost of new machine | -22000000 | |||||||||||
| Initial working capital | -1240000 | |||||||||||
| =Initial Investment outlay | -23240000 | |||||||||||
| Profits | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | 5901300 | ||
| -Depreciation | (Cost of equipment-salvage value)/no. of years | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | -2100000 | |
| =Pretax cash flows | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | 3801300 | ||
| -taxes | =(Pretax cash flows)*(1-tax) | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | 2850975 | |
| +Depreciation | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | 2100000 | ||
| =after tax operating cash flow | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | ||
| reversal of working capital | 1240000 | |||||||||||
| +Proceeds from sale of equipment after tax | =selling price* ( 1 -tax rate) | 750000 | ||||||||||
| +Tax shield on salvage book value | =Salvage value * tax rate | 250000 | ||||||||||
| =Terminal year after tax cash flows | 2240000 | |||||||||||
| Total Cash flow for the period | -23240000 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 4950975 | 7190975 | |
| Discount factor= | (1+discount rate)^corresponding period | 1 | 1.17334128 | 1.376729759 | 1.615373857 | 1.8953848 | 2.2239333 | 2.6094327 | 3.0617551 | 3.5924836 | 4.215209 | 4.945879 |
| Discounted CF= | Cashflow/discount factor | -23240000 | 4219552.389 | 3596185.068 | 3064909.698 | 2612121.3 | 2226224.6 | 1897337.7 | 1617038.215 | 1378148.2 | 1174550 | 1453933 |
| NPV= | Sum of discounted CF= | 0.00 | ||||||||||
| IRR is discount rate at which NPV = 0 = | 17.3341% | |||||||||||
"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 $1.07 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 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 $1.07 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 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 $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.21 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 and the purchase of the equipment necessary to produce the diet drink will cost $27.00 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 $1.07 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 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 $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.34 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 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 $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.48 million at the beginning of the project and will be recovered at the end. The new...
1. 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 $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...
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 $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.42 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 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 $1.46 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 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 $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.19 million at the beginning of the project and will be recovered at the end. The new...