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Sunshine Smoothies Company ( SSC ) manufactures and distributes smoothies. SSC is considering the development of a new line of high - protein energy smoothies.
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 product development team has spent $ over four years developing this line of highprotein energy smoothies. The project will require that the company spend $ million today t to purchase additional equipment. This equipment is depreciated a accelerated depreciation schedule at the rate of in year in year in year for each of the following four years. The company plans to use the equipment for all years of the project. At t 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 t This working capital will be partially funded by Accounts Payable of $ Accounts Receivable will be $ starting in year and will continue to increase by a year until the end of the project. Expected highprotein energy smoothie sales are as follows: Year $ Year $ Year $ Years The project's annual operating costs excluding depreciation are expected to be of sales in year one and decline ratably to of sales in Year and again ratably until of sales in Year until the end of the project. The company's tax rate is The following table gives SSCs earnings per share for the last years. The common stock, million shares outstanding, is now selling for $ per share. The expected dividend at the end of the current year is of the EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. Note that years of growth are reflected in the years of data. Year EPS Year EPS $ $ The current interest rate on new debt is ; SSCs marginal tax rate is ; and its target capital structure is debt and equity. Calculate SSCs aftertax cost of debt. Round your answer to two decimal places. Calculate SSCs cost of common equity. Find SSCs WACC. Do not round intermediate calculations. Round your answer to two decimal places. Find the NPV Payback Period, IRR & MIRR for the project. Run two new scenarios on this project o Scenario A: Operating performance only improves to and stays flat at that rate until the end of the project. This is likely to happen o Scenario B: SSCs production facility has been recently changed to an empowerment zone, making them eligible for a reduced federal tax obligation. Their new tax rate is There is a likelihood of this happening. o Assume there is a chance of the original scenario occurring. With these new scenarios, what is the adjusted rate of return on the project and what is the risk and coefficient of variation?
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 product development team has spent $ over four years developing this line of highprotein energy smoothies.
The project will require that the company spend $ million today t to purchase additional equipment. This equipment is depreciated a accelerated depreciation schedule at the rate of in year in year in year for each of the following four years. The company plans to use the equipment for all years of the project. At t 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 t This working capital will be partially funded by Accounts Payable of $ Accounts Receivable will be $ starting in year and will continue to increase by a year until the end of the project.
Expected highprotein energy smoothie sales are as follows:
Year $
Year $
Year $
Years
The project's annual operating costs excluding depreciation are expected to be of sales in year one and decline ratably to of sales in Year and again ratably until of sales in Year until the end of the project.
The company's tax rate is
The following table gives SSCs earnings per share for the last years. The common stock, million shares outstanding, is now selling for $ per share. The expected dividend at the end of the current year is of the EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. Note that years of growth are reflected in the years of data.
Year EPS Year EPS
$ $
The current interest rate on new debt is ; SSCs marginal tax rate is ; and its target capital structure is debt and equity.
Calculate SSCs aftertax cost of debt. Round your answer to two decimal places.
Calculate SSCs cost of common equity.
Find SSCs WACC. Do not round intermediate calculations. Round your answer to two decimal places.
Find the NPV Payback Period, IRR & MIRR for the project.
Run two new scenarios on this project
o Scenario A: Operating performance only improves to and stays flat at that rate until the end of the project. This is likely to happen
o Scenario B: SSCs production facility has been recently changed to an empowerment zone, making them eligible for a reduced federal tax obligation. Their new tax rate is There is a likelihood of this happening.
o Assume there is a chance of the original scenario occurring.
With these new scenarios, what is the adjusted rate of return on the project and what is the risk and coefficient of variation?
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