Question
Exercise 3. FOOD plc is considering launching a new ready-made product line across Europe: soups (project A), salads (project B) and sandwiches (project C) which
Exercise 3. FOOD plc is considering launching a new ready-made product line across Europe: soups (project A), salads (project B) and sandwiches (project C) which will imply the following initial investments and expected cash flows: Project A Project B Project C II (initial investment) 200,000 350,000 400,000 Cash Flow year 1 50,000 70,000 100,000 Cash Flow year 2 150,000 150,000 120,000 Cash Flow year 3 80,000 220,000 110,000 Calculate the payback period for each project and advice which product line the company should chose. Considering that the discount rate is 3%, calculate the NPV for each project and compare the discounted pay back periods with the payback periods. Which product line should the company chose according to the discounted payback period? Which project would you recommend from an IRR and BCR points of view? FOOD plc chose the soup product line and generates revenues of GBP 3,000,000 the following year. Fixed costs are of GBP 250,000 and variable costs of GBP 150,000, whilst increasing depreciation is of GBP 50,000 per year. Calculate the companys operating cash flow knowing that corporate tax rate in the UK is of 25%. The company has to spend GBP 150,000 on manufacturing equipment maintenance and its difference between current assets and liabilities is of GBP 250,000. What is FOOD plc free cash flow?
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