Sunshine Ltd. is a privately owned business in Brisbane that operates 100 fruit juice bars in

Queensland. It achieved strong results last year, with record total sales of AUD 200 million. Its

cost of goods sold (COGS) then was 70% and its owners have indicated that going forward, it

will be able to maintain this level of COGS for any new shop that it plans to open.

The strong results were down in large part to the companys aggressive marketing efforts. This

marketing complain cost the company a total of AUD 200,000 per year, which is shared equally

among all of its juice bars. Currently, with the summer coming soon, Sunshine Ltd. is consid

ering opening a new juice bar on UQ Refectory to cater specififically to UQ students and staff.

This investment will cost a total of AUD 1.5 million to establish. Sunshine has estimated that

it will be able to achieve the same sales revenue for the new bar and operate this bar for 5

years.

Sunshine Ltd. is subject to a 30% corporate tax rate. Sunshine Ltd. has asked you, a fifinance

expert, to analyse this potential project.

a) Estimate the after-tax cash flflows for the fifirst 5 years of operations for this new juirce bar

project.

b) If the discount rate is 8.0%, what is the NPV of this project? Should Sunshine accept this

project?

Table 1: Accounting Flows

Table 2: Cash Flows