Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Yummy food products is considering a new diet products business with an new chocolate product. You were hired as an assistant to the finance director

image text in transcribed

Yummy food products is considering a new diet products business with an new chocolate product. You were hired as an assistant to the finance director to evaluate the new project. The marketing department made marketing research that costs $50.000. The chocolates would be produced in an unused building adjacent to Yummy's main plant. Yummy owns the building. which is fully depreciated. Yummy could lease it's building to another party and earn $15,000 per year. The required equipment would cost $200,000, plus an additional $40,000 for shipping and installation. In addition, inventories would rise by $25,000, while accounts payable would increase by $5,000. All of these costs would be incurred at t0. Equipment will be depreciated using declining balance method over 5 years (Normal rate: %20) The cash inflows are assumed to begin 1 year after the project is undertaken, or at t1, and to continue out to t5. At the end of the project's life, the equipment is expected to have a salvage value of $25,000. Unit sales are expected to be 100,000, 110,000, 120,000, 130,000, 140,000 over the five years. The expected sales price is $2.00 per unit in the first year. Due to the inflation, it is expected to rise by %5 in each of the following years. Cash operating costs for the project (total operating costs less depreciation) are expected to total 60% of dollar sales. The tax rate is 40%, and its WACC is 10%. You have been asked to evaluate the project and find the payback, NPV, IRR, PI and Modified IRR of the Project. Draw the NPV profile graph using alternative WACC's. (Also do it with excel)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

What was the EMS?

Answered: 1 week ago