Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2. You have also been assigned to evaluate one of Starbucks' potential new investment projects. (This is a fictional project!) Starbucks is considering selling coffee
2. You have also been assigned to evaluate one of Starbucks' potential new investment projects. (This is a fictional project!) Starbucks is considering selling coffee mugs with the slogan "Black Lives Always Matter at Starbucks" to combat poor publicity at the Starbucks' stores. Estimated information on the project is below. Starbucks expects to sell the mugs for only two years. Mug details Expected price $ 28.00 per mug Expected vaiable costs $ 11.00 per mug Quantity per year year 1 Expected quantity of mugs sold 80,000 160,000 Fixed costs (advertising, management) $ 1,400,000 per year Cost of equipment year o $ 1,000,000 Sale of equipment year 2 $ 400,000 Net working capital details: Initial net working capital needs $ 70,000 time o Net working capital years 1 and 2 20% of Revenues year 2 Marginal tax rate Required rate on project 21% 10% 7. a. What is the Net Present Value of the mug project? b. What is the Modified IRR of the mug project? c. Should Starbucks invest in the project? Why or why not? d. What is a possible externality to Starbucks from the project? 2. You have also been assigned to evaluate one of Starbucks' potential new investment projects. (This is a fictional project!) Starbucks is considering selling coffee mugs with the slogan "Black Lives Always Matter at Starbucks" to combat poor publicity at the Starbucks' stores. Estimated information on the project is below. Starbucks expects to sell the mugs for only two years. Mug details Expected price $ 28.00 per mug Expected vaiable costs $ 11.00 per mug Quantity per year year 1 Expected quantity of mugs sold 80,000 160,000 Fixed costs (advertising, management) $ 1,400,000 per year Cost of equipment year o $ 1,000,000 Sale of equipment year 2 $ 400,000 Net working capital details: Initial net working capital needs $ 70,000 time o Net working capital years 1 and 2 20% of Revenues year 2 Marginal tax rate Required rate on project 21% 10% 7. a. What is the Net Present Value of the mug project? b. What is the Modified IRR of the mug project? c. Should Starbucks invest in the project? Why or why not? d. What is a possible externality to Starbucks from the project
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started