Your company produces candy and considers introducing a new flavor A year ago, the company spent $16,800 on a marketing survey to learn about consumer interest in this flavor If this new type of a candy is produced and offered for sale, the estimated revenue in Year 1 is $420,000 Sales are forecasted to grow at a rate of 3 per year Incremental variable costs are expected to be 60 of incremental revenues The net working capital in Year 0 is expected to be $75,000 with a full recovery at the end of the project This project requires an immediate investment of $376,000 in equipment The equipment is to be depreciated over 10 years on a straight line basis to zero value The new candy flavor will be discontinued in 5 years, and the project will end At the end of this project, the equipment will be sold for $164,000 The tax rate is 28 , and the required rate of return is 16 Page 1 of 4 Based on the NPV and IRR investment criteria, should your company introduce a new candy flavor 1) Should the cost of a marketing survey be included in your decision Why or why not (3 points) 2) Calculate the operating cash flow (OCF) for each year of the project Show each item that goes into the OCF on its own row (10 points) 3) Calculate the Initial Investment of the project (3 points) 4) Calculate the Terminal cash flow of the project (3 points) 5) Show full recovery in the Investment in Net Working Capital (3 points) 6) Calculate the Cash Flow from Assets for each year of the project (3 points) 7) Calculate the projects NPV (NOTE Make sure to use the NPV function in Excel correctly) (3 points) a State whether you should introduce a new candy flavor based on NPV Explain why (2 points) 8) Calculate the projects IRR (use the Excel IRR function) (3 points) a Based on IRR, should you introduce a new candy flavor Explain why (2 points) An example of a spreadsheet organization for Part I of the assignment is below The highlighted cells indicate the place for reporting the answers

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Your company produces candy and considers introducing a new flavor. A year ago, the company spent $16,800 on a marketing survey to learn about consumer

Your company produces candy and considers introducing a new flavor. A year ago, the company spent $16,800 on a marketing survey to learn about consumer interest in this flavor. If this new type of a candy is produced and offered for sale, the estimated revenue in Year 1 is $420,000. Sales are forecasted to grow at a rate of 3% per year. Incremental variable costs are expected to be 60% of incremental revenues. The net working capital in Year 0 is expected to be $75,000 with a full recovery at the end of the project. This project requires an immediate investment of $376,000 in equipment. The equipment is to be depreciated over 10 years on a straight-line basis to zero value. The new candy flavor will be discontinued in 5 years, and the project will end. At the end of this project, the equipment will be sold for $164,000. The tax rate is 28%, and the required rate of return is 16%.

Page 1 of 4

Based on the NPV and IRR investment criteria, should your company introduce a new candy flavor?

1) Should the cost of a marketing survey be included in your decision? Why or why not?(3 points)
2) Calculate the operating cash flow (OCF) for each year of the project. Show each item that goes into the OCF on its own row. (10 points)
3) Calculate the Initial Investment of the project. (3 points)
4) Calculate the Terminal cash flow of the project. (3 points)
5) Show full recovery in the Investment in Net Working Capital. (3 points)
6) Calculate the Cash Flow from Assets for each year of the project. (3 points)
7) Calculate the projects NPV (NOTE: Make sure to use the NPV function in Excel

correctly). (3 points) a. State whether you should introduce a new candy flavor based on NPV. Explain

why. (2 points)
8) Calculate the projects IRR (use the Excel IRR function). (3 points)

a. Based on IRR, should you introduce a new candy flavor? Explain why. (2 points) An example of a spreadsheet organization for Part I of the assignment is below. The highlighted

cells indicate the place for reporting the answers.