Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gums International manufactures all types of candies. In this very competitive market, the company has to continuously innovate and launch products with new shapes and/or

Gums International manufactures all types of candies. In this very competitive market, the company has to continuously innovate and launch products with new shapes and/or flavors. Charlie, head of the chocolate product line, plans to launch a new product which life will not last more than three years. To do this, he needs to purchase a specific machine that can be used only for this product. Sales could be 10,000 boxes in year 1 but should rapidly decrease (by 30% each year). In order to present the project to Mr. Forrest, CEO of the company, Charlie collects the data below. He really wonders if his project is profitable and if he will get the financing from the company. As he starts working on his presentation, he smiles at the thought of one of his boss' favorite sayings: "Life is like a box of chocolates. You never know what you're gonna get."

Volume of Sales in year 1 10,000 boxes of chocolate

Yearly change of volume of sales -30% (decrease every year)

Unit selling price (per box) 5.00 per box

Unit variable cost 3.00 per box

Total fixed costs 12,000 per year

Price of the new machine 6 000 at the beginning of year 1

Disposal value of the machine at the end of period 0

Working capital (in % of sales) 20%

Recovery of working capital at the end of period 100%

Tax rate 30%

Cost of capital (wacc) 8%

QUESTION: Calculate the Net Present Value of this project.

Step by Step Solution

3.39 Rating (152 Votes )

There are 3 Steps involved in it

Step: 1

Step 12 Summarizing the given details Year 1 Year 2 Year 3 Sales units 10000 7000 4900 Unit ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting and Analysis

Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon

6th edition

9780077632182, 78025672, 77632184, 978-0078025679

More Books

Students also viewed these Accounting questions