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Quantitative Problem: Sunshine Smoothies Company ( SSC ) manufactures and distributes smoothies. SSC is considering the development of a new line of high - protein
Quantitative Problem: Sunshine Smoothies Company SSC manufactures and distributes smoothies. SSC is considering the development of a new line of
highprotein energy smoothies. SSCs CFO has collected the following information regarding the proposed project, which is expected to last years:
The project can be operated at the company's Charleston plant, which is currently vacant.
The project will require that the company spend $ million today to purchase additional equipment. For tax purposes the equipment will be
depreciated on a straightline basis over years. Thus, the firm's annual depreciation expense is $$ The company plans to use the
equipment for all years of the project. At which is the project's last year of operation the equipment is expected to be sold for $ before
taxes.
The project will require an increase in net operating working capital of $ at The cost of the working capital will be fully recovered at
which is the project's last year of operation
Expected highprotein energy smoothie sales are as follows:
Year Sales
$
The project's annual operating costs excluding depreciation are expected to be of sales.
The company's tax rate is
The company is extremely profitable; so if any losses are incurred from the highprotein 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 project they can be used in the year they occur.
The project has a WACC
What is the project's expected NPV and IRR? Do not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to
two decimal places.
NPV $
IRR
Should the firm accept the project?
The firm should accept the project.
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