Question

unanswered not submitted Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the

0 0
Add a comment Improve this question Transcribed image text
Answer #1
Profit = (revenues-sales)*(1-switch%)
=(8890000-2160000)*(1-0.12)
=5922400
Time line 0 1 2 3 4 5 6 7 8 9 10
Cost of new machine -27000000
Initial working capital -1010000
=Initial Investment outlay -28010000
Profits 5922400 5922400 5922400 5922400 5922400 5922400 5922400 5922400 5922400 5922400
-Depreciation (Cost of equipment-salvage value)/no. of years -2600000 -2600000 -2600000 -2600000 -2600000 -2600000 -2600000 -2600000 -2600000 -2600000
=Pretax cash flows 3322400 3322400 3322400 3322400 3322400 3322400 3322400 3322400 3322400 3322400
-taxes =(Pretax cash flows)*(1-tax) 2392128 2392128 2392128 2392128 2392128 2392128 2392128 2392128 2392128 2392128
+Depreciation 2600000 2600000 2600000 2600000 2600000 2600000 2600000 2600000 2600000 2600000
=after tax operating cash flow 4992128 4992128 4992128 4992128 4992128 4992128 4992128 4992128 4992128 4992128
reversal of working capital 1010000
+Proceeds from sale of equipment after tax =selling price* ( 1 -tax rate) 720000
+Tax shield on salvage book value =Salvage value * tax rate 280000
=Terminal year after tax cash flows 2010000
Total Cash flow for the period -28010000 4992128 4992128 4992128 4992128 4992128 4992128 4992128 4992128 4992128 7002128
Discount factor= (1+discount rate)^corresponding period 1 1.127125311 1.270411467 1.43191292 1.6139453 1.8191186 2.0503746 2.31102912 2.6048194 2.935958 3.309192
Discounted CF= Cashflow/discount factor -28010000 4429079.847 3929536.32 3486334.91 3093120.9 2744256.5 2434739.5 2160132.019 1916496.8 1700340 2115963
NPV= Sum of discounted CF= 0.00
IRR is discount rate at which NPV = 0 = 12.7125%
Add a comment
Know the answer?
Add Answer to:
unanswered not submitted Caspian Sea Drinks is considering the production of a diet drink. The expansion...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • #3 unanswered not_submitted Caspian Sea Drinks is considering the production of a diet drink. The expansion...

    #3 unanswered not_submitted 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 $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.43 million at the beginning of the project and will be recovered at the...

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

    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 $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...

    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 $28.00 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 $1.31 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 $26.00 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 $1.29 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 $28.00 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 $1.31 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...

    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 $27.00 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 $1.05 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 $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 $1.25 million at the beginning of the project and will be recovered at the end. The new...

  • unanswered not_submitted Caspian Sea Drinks is considering the production of a diet drink. The expansion of...

    unanswered not_submitted 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 $26.00 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....

  • 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 $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...

    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 $1.37 million at the beginning of the project and will be recovered at the end. The new...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT