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Capital Budgeting and Opportunity Costs ( 4 points total ) Coca - Cola ( KO ) is considering the introduction of a new soda: Coca

Capital Budgeting and Opportunity Costs (4 points total)
Coca-Cola (KO) is considering the introduction of a new soda: Coca-Cola Spiced.
To produce the new drink, Coca-Cola will need to expand the size of its production center in Marietta, Georgia. Specifically, Coca-Cola will build an extension that costs $200 million now (at time 0). This capital expenditure will be depreciated to zero using a 20-year straight-line depreciation schedule. Coca-Cola does not expect to incur any other capital expenditure expenses for this project.
Coca-Cola expects to sell 100 million units of the new drink every year in perpetuity. The sale price is expected to be $2.50 per unit in year 1, and Coca-Cola expects this sale price to increase by 8% a year for the subsequent two years (year 2 and year 3).
Every year, Coca-Cola estimates its cost of goods sold (COGS) to be 75% of sales revenue, and its operating expenses (other than depreciation) to be 10% of sales revenue. Coca-Cola also estimates that the Net Working Capital required to run the project every year will be 6% of sales revenue.
Finally, Coca-Cola realizes that sales of this new product will reduce the sales of original Coke. Specifically, it estimates that 20% of the units of Coca-Cola Spiced sold will be purchased by customers who, had the new product not existed, would have instead bought a unit of original Coke which, for the foreseeable future (i.e., years 1,2,3), is expected to sell for $2.00 per unit and costs $1.20 to produce.
Coca-Cola pays taxes at a rate of 30% and the discount rate is 8%.
Calculate the project's Free Cash Flow (FCF) in Year 1. Make sure to take into account the lost sales of original Coke that the new product will prompt.
Answer Format: Enter your answer in $million. For example, if your answer is $12.34 million, enter 12.34 without the dollar sign, without the word "million," and with two decimals.
Incorrect answer:
194.55
Results for question 11.
11
0/1 point
Calculate the project's Free Cash Flow (FCF) in Year 2. Make sure to take into account the lost sales of original Coke that the new product will prompt.
Answer Format: Enter your answer in $million. For example, if your answer is $12.34 million, enter 12.34 without the dollar sign, without the word "million," and with two decimals.
Incorrect answer:
7.79
Results for question 12.
12
0/1 point
Calculate the project's Free Cash Flow (FCF) in Year 3. Make sure to take into account the lost sales of original Coke that the new product will prompt.
Answer Format: Enter your answer in $million. For example, if your answer is $12.34 million, enter 12.34 without the dollar sign, without the word "million," and with two decimals.
Incorrect answer:
10.1708
Results for question 13.
13
0/1 point
After year 3, the project's yearly Free Cash Flows are expected to stay constant in perpetuity at their year-3 level. Calculate the project's Net Present Value (NPV) at time 0.
Answer Format: Enter your answer in $million. For example, if your answer is $12.34 million, enter 12.34 without the dollar sign, without the word "million," and with two decimals.

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