Question
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.
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Step 12 Summarizing the given details Year 1 Year 2 Year 3 Sales units 10000 7000 4900 Unit ...Get Instant Access to Expert-Tailored Solutions
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