This assignment is a basic finance course assignment.

4 out of the 5 questions are already answered. You job is to answer question 5 and to show all working for questions 1-4. The deadline and price are fixed.

There are two parts to this assignment.

1. Answer the question:Should Coca-Cola go ahead with this project? Explain your answer in a sentence or two.

2. Use Excel cell formulas, financial functions or algebraic time value of money equations to show the working for the answers in the file.

Financial Management Thursday, November 5, 2015 Coca-Cola Project Analysis Coca-Cola is considering jumping on the pomegranate bandwagon by producing Poma-Cola and Pomegranate Sprite carbonated beverages in 2016 (t=1). New produ Year Expected New Pomegranate Sales 2016 $22 million 2017 $30 million 2018 $25 million 2019 $20 million Projected operating costs (other than depreciation) are 73% of sales for the new beverages. However, Coca-cola estimates that projected sales for other carbonated be Coca-Cola's marginal tax rate is 40% and this is an average risk project for the company giving the project a WACC of 9%. Answer the follow 1. What is the initial cost of the project? 2. What are the expected operating cash flows for 2016 thru 2019? 3. What is the expected end of project termination cash flow at the end of 2019? 4. Calculate the NPV and IRR for the proposed project. 5. Should Coca-Cola go ahead with this project? Explain your answer in a sentence or two. Answers 2015 Cost of the New Machine Net Working Capital Initial Cost of Project 2016 2017 2018 2019 22 -16.06 -5 3.4 -6 -1.66 -0.996 6 5.004 30 -21.9 -9 6.12 -6 -0.78 -0.468 6 5.532 25 -18.25 -7 4.76 -6 -1.49 -0.894 6 5.106 20 -14.6 -4 2.72 -6 -1.88 -1.128 6 4.872 -30 -5 -35 Sales Operating Cost Decrease in Sale of other Products Decrease in Cost from fewer Sales Depreciation Pretax Cash Flows Taxes (Pretax)^(1-tax) Depreciation Operating Cash Flow Reverse of Working Capital Proceeds from Sales after Tax Terminal Year after Tax Cash Flows Total Cash Flow for the Period Required rate of return 9% Discount Factor (1+required rate)^n Discounted Cash Flow (cash flow/dicount factor) NPV (Sum of discounted Cash Flow) Total Cash Flow for the Period IRR 1.10151 Discount Factor (1+required rate)^n Discounted Cash Flow (cash flow/discount factor NPV (Sum of discounted Cash Flow 5 8.4 13.4 -35 5.04 5.532 5.106 18.272 1 -35 -8.86589 1.09 4.590826 1.1881 4.656174 1.295029 3.942769 1.411582 12.94435 -35 5.004 5.532 5.106 18.272 1 -35 -0.0008 0.989849 5.055317 0.979801 5.646405 0.969855 5.264705 0.96001 19.03314 *Answers in Mil oduction equipment and facilities costing $30 million will be required in 2015 (t =0) and fall into the 5-year straight-line depreciation class. Additional net working c d beverages will fall $5 million in 2016, $9 million in 2017, $7 million in 2018, and $4 million in 2019 if they introduce the new beverages. Projected operating costs llowing. Millions g capital of $5 million will also be needed in 2015. Here are sales projections for the proposed projects. osts for these existing beverages are 68% of sales. At the end of 2019, the project will end and the production equipment and facilities could be sold for an estimated $ ed $10 million. NPV is one of the capital budgeting tool that appraise the project for its acceptance or rejection. It is the difference of sum of present value of all the cash flows associated with the project and the initial investment. Thus, if the NPV > 0, then the project should be accepted and if NPV