Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant...

80.2K

Verified Solution

Question

Finance

Caspian Sea Drinks is considering the production of a dietdrink. The expansion of the plant and the purchase of the equipmentnecessary to produce the diet drink will cost $24.00 million. Theplant and equipment will be depreciated over 10 years to a bookvalue of $1.00 million, and sold for that amount in year 10. Networking capital will increase by $1.26 million at the beginning ofthe project and will be recovered at the end. The new diet drinkwill produce revenues of $8.56 million per year and cost $1.91million per year over the 10-year life of the project. Marketingestimates 12.00% of the buyers of the diet drink will be people whowill switch from the regular drink. The marginal tax rate is24.00%. The WACC is 14.00%. Find the NPV (net present value).

Answer & Explanation Solved by verified expert

4.5 Ratings (726 Votes)

NOTEplease follow the step wise solutionIn step 3notax is deducted from the salvage value as See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Caspian Sea Drinks is considering the production of a dietdrink. The expansion of the plant and the purchase of the equipmentnecessary to produce the diet drink will cost $24.00 million. Theplant and equipment will be depreciated over 10 years to a bookvalue of $1.00 million, and sold for that amount in year 10. Networking capital will increase by $1.26 million at the beginning ofthe project and will be recovered at the end. The new diet drinkwill produce revenues of $8.56 million per year and cost $1.91million per year over the 10-year life of the project. Marketingestimates 12.00% of the buyers of the diet drink will be people whowill switch from the regular drink. The marginal tax rate is24.00%. The WACC is 14.00%. Find the NPV (net present value).