Question
SSC is considering another project: the introduction of a weight loss smoothie. The project would require a $3.2 million investment outlay today (t = 0).
SSC is considering another project: the introduction of a "weight loss" smoothie. The project would require a $3.2 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers. There is a 40% chance that demand will be good, in which case the project will produce after-tax cash flows of $2.1 million at the end of each of the next 3 years. There is a 60% chance that demand will be poor, in which case the after-tax cash flows will be $0.5 million 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 flows 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 will not receive any cash flows after t = 1, but it will be able to sell the assets related to the project for $2.25 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? Round your answer to 2 decimal places. Do not round your intermediate calculations. Use the values in "millions of dollars" to ascertain the answer. $ millions of dollars
information regarding the proposed project, which is expected to last 3 years: - The project can be operated at the company's Charleston plant, which is currently vacant. before taxes. - Expected high-protein energy smoothie sales are as follows: Year Sales 123$2,200,0007,750,0003,500,000 - The project's annual operating costs (excluding depreciation) are expected to be 60% of sales. - The company's tax rate is 40%. tax credits related to this project they can be used in the year they occur.) - The project has a WACC =10.0%. What is the project's expected NPV and IRR? Round your answers to 2 decimal places. Do not round your intermediate calculations. Should the firm accept the project
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