Question:

prepare the income statement and the total cash flow table for this new project

LetsDrink wants to introduce a new energy version of the soft drink, the ZeroDrink, into their lineup. LetsDrink spent $600,000 to develop the new ZeroDrink, which features more environmentally friendly ingredients, and is healthier than the existing soft drink. The company has spent a further $150,000 on a marketing study to determine the new drinks expected sales figures.

LetsDrink can manufacture the new drink for $1.5 per bottle in variable costs. Fixed costs for the operation are estimated to run $250,000 per year. The estimated sales volume is 500,000, 600,000, and 350,000 drinks per year for the next three years, respectively. The unit price of the new drink will be $3.5. The necessary equipment can be purchased for $350,000 and will be depreciated on a five-year MACRS schedule. It is believed the value of the equipment in three years will be $200,000.

As previously stated, LetsDrink currently manufactures the ZeroDrink. Production of the existing product is expecting to be terminated in two years. If LetsDrink does not introduce the new BZ product, sales of the existing product will be $1,000,000, and $800,500 per year for the next two years, respectively. The price of the existing soft drink, IB is $2.5 per bottle, with variable costs of $1 each and fixed costs of $3 million per year. If LetsDrink does introduce the new drink, sales of the existing one will fall by 100,000 bottles per year, and the price of the existing soft drink will have to be lowered to $2 per bottle. Net working capital for the project will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. LetsDrink has a 20 percent corporate tax rate. The company has a target debt to equity ratio of 0.5 and is currently BBB- rated (according to S&P 500 ratings). The overall cost of capital of LetsDrink is 10 percent.

prepare the income statement and the total cash flow (CFFA) table for this new project?