Problem: Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. SSC is considering the development of a new line of high-protein energy smoothies. SSC: CFO has collected the following information regarding the proposed project, which is expected to last 3 years: - The project can be operated ot the company's Charleston plant, which is currently vacant. - The project will require that the company spend $4.5 millon today (t=0) to purchase additional equipment. For tax purposes the equipment will be depreciated on a straight-fine basis over 5 years, Thus, the firm's annual depreciation expense is $4,500,000/5$900,000, The company plans to use the equipment for all 3 vears of che project. At t=3 (which is the project's last year of operation), the equipment is expected to be sold for $1,800,000 before taxes. - The project will require an increase in net operating working capital of $730,000 at t=0. The cost of the working capital will be fully recovered at t=3 ( which is the project's last vear of operation). - Expected high-protein energy smoothie sales are as follows: Yeat sales 1$2,100,000 28,000,000 3,150,000 - The project's annual operating costs (excluding depreciation) are expected to be 60% of sales. - The company's tax rate is 25%. - The company is extremely profitable; so if any losses are incurred from the high-protein energy smoothie project they can be used to partially offset taxes paid on the company/s other projects. (That is, assume that if there are any tax credits related to this profect they can be used in the vear they occur.) - The project has a WACC =10.0%. What is the project's expected NPV and IRA? Do not round intermufiste calculations. Round the monetary value to the nearest cent and percentage value to two decimal places. NPV 3 thR w Should the firra accept the project? SSC is considering another project: the introduction of a "weight loss" smoothie. The project would require a 53.2 maltion investment outioy today ( t=0 ). The after-tax cash floms would depend on whether the weight loss smoothie is well received by consumers. There is a 40 s chance that demand will be good, in which case the project will produce aftertax cash flows of $2.3 million at the end of each of the next 3 years. There is a 60% chance that demand will be poos, in which case the after tax cash flows will be so.49 milich for 3 years, The project is riskier than the firm's other projects, so it has a wacc of 11%. The firm will know if the project is successful after receiving the cash fiows the first year, and after receiving the first year's cash flows it will have the option to abandon the project. If the firm decides to abandon the project the company hil not ceceive any cash fows after t=1, but it will be able to sell the assets reloted to the project for $2.5 million after taxes at t=1. Assuming the company has an option to abandon the project, what is the expected NPV of the project today? Do not round intermediate calculations. Round your answer to two decimat places, Enter yout answer in miltions. For exarplie, an answer of $10,550,000 should be entered as 10.55
