Coporate Finance

As the marketing manager, you have been tasked to consider expanding the detergent product line. Brand XYZ is a discount detergent product that expects to generate $65 million dollars in sales per year for the next twenty years. To create this product, the firm will have to spend an extra $140 million in property, plant and equipment. The company spent already $13 million on marketing and it expects that the new brand will eat into existing sales of another detergent. You estimate that this cannibalization is about $25 million per year. Costs are 50% of sales for all products of the firm. Working capital is 30% of next year sales for all products of the firm. The tax rate is 40% and assume straight line depreciation. Assume that the appropriate discount rate is 11%. The expected life of the product and property, plant and equipment are 20 years. Assume no salvage value. Determine the NPV and IRR of the project. Do you recommend launching the new project?