Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Orange Monster Drinks is considering the purchase of a plum juicer (the Moment Maid). The company has assembled the following financial information about the proposed

image text in transcribed
Orange Monster Drinks is considering the purchase of a plum juicer (the Moment Maid). The company has assembled the following financial information about the proposed new product . The juicer will cost $2,700,000 fully installed and has a 15-year life. It will be depreciated to a book value of $350,000 and sold for that amount in year 15 The sale of new juice will generate $940,000 in incremental sales each year for the next 15 years. Because of the expansion, incremental operating costs will increase by $305,000 per year. The company will increase net working capital by $270,000 at the beginning of the project, the net working capital will be liquidated at the end of the project . Last year, the Engineering Department spent $25,000 researching the various juicers. Portions of the plant floor have been redesigned to accommodate the juicer The incremental cost of this redesign is estimated to be $26,000 Orange Monster Drinks' marginal tax rate is 35% Orange Monster Drinks will finance all Year 0 costs with 55% equity and 45% debt. Currently, Orange Monster Drinks 16 year, 6% coupon bond (semi-annual payments) sells for $970 00 Orange Monster Drinks' stock currently has a market value of $20 and the company believes the market estimates that dividends will grow at 2.5% forever. Next year's dividend is projected to be $1.95 Based on the information provided above, what is the annual operating net cash flow for year 5 (i.e.. CF5) for this project

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

Surviving In General Management

Authors: Philip Berman, Pauline Fielding

1st Edition

9780333483145

More Books

Students also viewed these Finance questions