Coca-Cola Inc. expects to sell a total 2,000,000 bottles for the first year at an expected sales price of $2.00 per bottle Unit Sales are expected to grow by 20 percent in years 2 and 3, due to the increase in the brand's market share, and to slow down to a 10 percent growth thereafter. The cost control department anticipates an increase of 10 percent per year in the sales price per bottle starting the beginning of year 3. Cash operating costs for the project are expected to total 50 percent of dollar sales throughout the life of the project Coca-Cola Inc. is subject to a marginal tax rate of 15 percent applied to all corporate profits and a tax rate of 10 percent to be applied to capital gain/loss transactions. Tentatively, the Minute Maid project is assumed to have a different risk than Coca-Cola Inc; so the project's cost of capital is 12 percent You have been asked by the director of capital budgeting to evaluate the project and to make a recommendation as to whether it should be accepted or rejected. 1. Prepare a schedule to calculate the free cash flows of the apple juice project for Delicious Juice Inc. Evaluate the feasibility of the above project using the net present value (NPV) and internal rate of return (IRR) technique 3. How would your answers differ if you used the payback approach? Explain why you would not rely on it. 2 Coca-Cola Inc. expects to sell a total 2,000,000 bottles for the first year at an expected sales price of $2.00 per bottle Unit Sales are expected to grow by 20 percent in years 2 and 3, due to the increase in the brand's market share, and to slow down to a 10 percent growth thereafter. The cost control department anticipates an increase of 10 percent per year in the sales price per bottle starting the beginning of year 3. Cash operating costs for the project are expected to total 50 percent of dollar sales throughout the life of the project Coca-Cola Inc. is subject to a marginal tax rate of 15 percent applied to all corporate profits and a tax rate of 10 percent to be applied to capital gain/loss transactions. Tentatively, the Minute Maid project is assumed to have a different risk than Coca-Cola Inc; so the project's cost of capital is 12 percent You have been asked by the director of capital budgeting to evaluate the project and to make a recommendation as to whether it should be accepted or rejected. 1. Prepare a schedule to calculate the free cash flows of the apple juice project for Delicious Juice Inc. Evaluate the feasibility of the above project using the net present value (NPV) and internal rate of return (IRR) technique 3. How would your answers differ if you used the payback approach? Explain why you would not rely on it. 2