Quantitative Problem: Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. SSC is considering the development of a...

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Quantitative Problem: Sunshine Smoothies Company (SSC)manufactures and distributes smoothies. SSC is considering thedevelopment of a new line of high-protein energy smoothies. SSC'sCFO has collected the following information regarding the proposedproject, which is expected to last 3 years: The project can beoperated at the company's Charleston plant, which is currentlyvacant. The project will require that the company spend $4 milliontoday (t = 0) to purchase additional equipment. For tax purposesthe equipment will be depreciated on a straight-line basis over 5years. Thus, the firm's annual depreciation expense is $4,000,000/5= $800,000. The company plans to use the equipment for all 3 yearsof the project. At t = 3 (which is the project's last year ofoperation), the equipment is expected to be sold for $1,200,000before taxes. The project will require an increase in net operatingworking capital of $730,000 at t = 0. The cost of the workingcapital will be fully recovered at t = 3 (which is the project'slast year of operation). Expected high-protein energy smoothiesales are as follows:
Year Sales
1 $2,200,000
2 $7,750,000
3 $3,500,000
The project's annual operating costs (excluding depreciation)are expected to be 60% of sales.
The company's tax rate is 40%.
The company is extremely profitable; so if any losses areincurred from the high-protein energy smoothie project they can beused to partially offset taxes paid on the company's otherprojects. (That is, assume that if there are any tax creditsrelated to this project they can be used in the year theyoccur.)
The project has a WACC = 10.0%.
What is the project's expected NPV and IRR? Round your answersto 2 decimal places. Do not round your intermediate calculations.NPV $ 351487.60 IRR 13.35 % Should the firm accept the project?

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Quantitative Problem: Sunshine Smoothies Company (SSC)manufactures and distributes smoothies. SSC is considering thedevelopment of a new line of high-protein energy smoothies. SSC'sCFO has collected the following information regarding the proposedproject, which is expected to last 3 years: The project can beoperated at the company's Charleston plant, which is currentlyvacant. The project will require that the company spend $4 milliontoday (t = 0) to purchase additional equipment. For tax purposesthe equipment will be depreciated on a straight-line basis over 5years. Thus, the firm's annual depreciation expense is $4,000,000/5= $800,000. The company plans to use the equipment for all 3 yearsof the project. At t = 3 (which is the project's last year ofoperation), the equipment is expected to be sold for $1,200,000before taxes. The project will require an increase in net operatingworking capital of $730,000 at t = 0. The cost of the workingcapital will be fully recovered at t = 3 (which is the project'slast year of operation). Expected high-protein energy smoothiesales are as follows:Year Sales1 $2,200,0002 $7,750,0003 $3,500,000The project's annual operating costs (excluding depreciation)are expected to be 60% of sales.The company's tax rate is 40%.The company is extremely profitable; so if any losses areincurred from the high-protein energy smoothie project they can beused to partially offset taxes paid on the company's otherprojects. (That is, assume that if there are any tax creditsrelated to this project they can be used in the year theyoccur.)The project has a WACC = 10.0%.What is the project's expected NPV and IRR? Round your answersto 2 decimal places. Do not round your intermediate calculations.NPV $ 351487.60 IRR 13.35 % Should the firm accept the project?