The XY Company is a soft drink company. Until today, the company bought empty cans from an outside supplier that charges Dew $0.20 per can. In addition, the transportation cost from the outside supplier to the factory is $1,000 per truck that transports 10,000 cans ($0.10 per can). The Dew Companys management is considering whether to start manufacturing cans in its plant. The cost of a can machine is $1,000,000 and its life span is 6 years. Historically, Dew Company used straight-line depreciation to zero for all of its equipment. This time they will depreciate $100,000 of the machines value every year and the book value at the end of year 6 would be 400,000. The company expects the equipment to be actually sold for $350,000 after 6 years. Maintenance and repair costs for the machine will be $50,000 per year. The additional space for the operation will cost the company $100,000 annually. The cost of producing a can in the factory will be $0.17. The cost of capital for Dew is 12% and the corporate tax rate is 40%. Also, assume that the Dew Company sells 4,000,000 soft drinks annually.

1. Calculate the capital cost

2. Calculate the initial outlay, annual operating cash flow and terminal cash flows. Complete the table with the timeline and calculate the NPV and IRR of the project.

Data Section
Old cost per can (outside supplier)
New cost per can (in-house)
Transportation Cost (per can)
Machine Cost
Machine Useful Life
Annual Depreciation (dollar ammount)
Book Value of Machine (end of year 6)
Sale Price of Machine (Actual Salvage-year 6)
Maintenance and Repairs
Additional Space Cost
Number of Cans Sold
Cost of Capital
Tax Rate