- Caspian Sea Drinks Is Considering The Production Of A Diet Drink The Expansion Of The Plant And The Purchase Of The Equ 1 (42.87 KiB) Viewed 16 times
drink. The expansion of the plant and the purchase of the equipment
necessary to produce the diet drink will cost $27.00 million. The
plant and equipment will be depreciated over 10 years to a book
value of $2.00 million, and sold for that amount in year 10. Net
working capital will increase by $1.21 million at the beginning of
the project and will be recovered at the end. The new diet drink
will produce revenues of $9.23 million per year and cost $2.19
million per year over the 10-year life of the project. Marketing
estimates 13.00% of the buyers of the diet drink will be people who
will switch from the regular drink. The marginal tax rate is
27.00%. The WACC is 11.00%. Find the IRR (internal rate of
return).
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.21 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.23 million per year and cost $2.19 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 27.00%. The WACC is 11.00%. Find the IRR (internal rate of return). Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))