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F Suppose a beverage company is considering adding a new product line. Currently the company sells packaged drinks and they are considering selling a new

F
Suppose a beverage company is considering adding a new product line.
Currently the company sells packaged drinks and they are considering selling a new coffee drink.
The coffee drink will have a selling price of $4.89 per can. The plant has excess capacity in a
fully depreciated building to process the coffee drink. The coffee drink will be discontinued in four years.
The new equipment is depreciated to zero using straight line depreciation. The new coffee drink requires
an increase in working capital of $30,000 and $5,000 of this increase is offset with accounts payable.
Projected sales are 80,000 cans of coffee drink the first year, with a 7 percent growth for the following years.
Variable costs are 46% of total revenues and fixed costs are $129,000 each year. The new equipment costs
$385,000 and has a salvage value of $20,000.
The corporate tax rate is 21 percent and the company currently has 100,000 shares of stock outstanding
at a current price of $11.50. The company also has 1200 bonds outstanding, with a current price of $995. The
bonds pay interest annually at the coupon rate is 3%. The bonds have a par value of $1,000 and will
mature in twenty years.
Even though the company has stock outstanding, it is not publicly traded. Therefore, there is no publicly
available financial information. However, management believes that given the industry they
are in, the most reasonable comparable Beta would be approximately 1.25.
The current risk free rate in the market has been volatile with interest rate changes, but it now sits at 3.86%
Management also believes the S&P 500 is a reasonable proxy, so the expected market return is 9.62%.
Therefore, the cost of equity is calculated using CAPM, and the market risk premium based on the
S&P 500 annual expected rate of return, along with the risk free rate and the given beta.
The WACC is then calculated using this information and the other information provided
above. Clearly show all your calculations for these calculations on the Blank Template tab.
Required
Calculate the WACC for the company.
Calculate the rate of debt for the company.
Calculate the cost of equity for the company.
please help me inal Case Project
I. Given the following data on proposed capital budgeting project.
Economic life of project in years.
Price of New Equipment
Fixed Costs
Salvage value of New Equipment
Effect on NWC:
First Year Revenues
Variable Costs
Marginal Tax Rate
Growth Rate
WACC
Beta
Spreadsheet for determining Cash Flows (in Thousands)
Timeline:
II. Net Investment Outlay = Initial CFs
Price
Increase in NWC
III. Cash Flows from Operations
Total Revenues
Variable Costs
Fixed Costs
Depreciation
Earnings Before Taxes
Taxes
Net Income
Depreciation
Net operating CFs
IV. Terminal Cash Flows
Salvage Value
Tax on Salvage Value
Return of NWC
Cash Flows
Present Value of CFs
Calculate:
NPV
Column D through G are the operating cash flows.
Cells D30, D31, and D32 include terminal cash flows.
PLEASE NOTE: You may need to change
inputs provided in Column E at left.Coffee Shop Case Project
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