Question
FDC has decided to offer Unicorn Cookies.We paid, a non-refundable, $120,000 for a marketing survey to help us understand food trends prior to settling in
FDC has decided to offer Unicorn Cookies. We paid, a non-refundable, $120,000 for a marketing survey to help us understand food trends prior to settling in on Unicorn as the next new cookie option. FDC thinks that the new cookie will generate $300,000 in incremental sales per year. Fixed costs will be $125,000 per year, and variable costs will be approximately 30% of sales (lots of food coloring). The capital investment in the equipment needed to produce the new cookies will cost $200,000 and will be depreciated in a straight-line manner for the 4 years of the cookie’s life (if you think unicorn will really last that long, I seriously hope it is already over). Assume no salvage value Net working capital will not be affected by this project (you’re welcome). The firm has an average tax rate of 15% and a marginal tax rate of 21%. The required rate of return on projects with similar risk is 9%.
Lay it out before you start- you get credit for this…
Time ZERO | Year 1-4 | |
Cash Flow from Capital Investment | ||
Cash Flow from Changes in Working Capital | ||
Cash Flow from Ongoing Operations Annual Components: | ||
Revenue | ||
Fixed | ||
Variable | ||
Total Expenses | ||
Depreciation | ||
pretax | ||
Taxes | ||
After Tax Profit | ||
Operating Cash flow | ||
| ||
Please evaluate the cash flows for the project and calculate the NPV | ||
Discount rate |
Total NPV Calculation___________
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