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\mathrm{.}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 $$2\mathrm{.}00$ per unit and costs $$1\mathrm{.}20$ to produce.

Coca$-$Cola pays taxes at a rate of $30\%$ and the discount rate is $8\%.$

Q: 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.