Quantitative Problem: Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. SSC is considering the de
Posted: Fri Jul 01, 2022 7:46 am
Quantitative Problem: Sunshine SmoothiesCompany (SSC) manufactures and distributes smoothies. SSC isconsidering the development of a new line of high-protein energysmoothies. SSC's CFO has collected the following informationregarding the proposed project, which is expected to last 3years:
What is the project's expected NPV and IRR? Round your answersto 2 decimal places. Do not round your intermediatecalculations.
? ?
Should the firm accept the project? yes orno?-Select-The firm should accept the project.The firm should notaccept the project.Correct 7 of Item 1
SSC is considering another project: the introduction of a"weight loss" smoothie. The project would require a $3.6 millioninvestment outlay today (t = 0). The after-tax cash flows woulddepend on whether the "weight loss" smoothie is well received byconsumers. There is a 40% chance that demand will be good, in whichcase the project will produce after-tax cash flows of $2.5 millionat the end of each of the next 3 years. There is a 60% chance thatdemand will be poor, in which case the after-tax cash flows will be$0.55 million for 3 years. The project is riskier than the firm'sother projects, so it has a WACC of 11%. The firm will know if theproject is successful after receiving the cash flows the firstyear, and after receiving the first year's cash flows it will havethe option to abandon the project. If the firm decides to abandonthe project the company will not receive any cash flows after t =1, but it will be able to sell the assets related to the projectfor $2.5 million after taxes at t = 1. Assuming the company has anoption to abandon the project, what is the expected NPV of theproject today? Round your answer to 2 decimal places. Do not roundyour intermediate calculations. Use the values in "millions ofdollars" to ascertain the answer.
$??? millions of dollars
What is the project's expected NPV and IRR? Round your answersto 2 decimal places. Do not round your intermediatecalculations.
? ?
Should the firm accept the project? yes orno?-Select-The firm should accept the project.The firm should notaccept the project.Correct 7 of Item 1
SSC is considering another project: the introduction of a"weight loss" smoothie. The project would require a $3.6 millioninvestment outlay today (t = 0). The after-tax cash flows woulddepend on whether the "weight loss" smoothie is well received byconsumers. There is a 40% chance that demand will be good, in whichcase the project will produce after-tax cash flows of $2.5 millionat the end of each of the next 3 years. There is a 60% chance thatdemand will be poor, in which case the after-tax cash flows will be$0.55 million for 3 years. The project is riskier than the firm'sother projects, so it has a WACC of 11%. The firm will know if theproject is successful after receiving the cash flows the firstyear, and after receiving the first year's cash flows it will havethe option to abandon the project. If the firm decides to abandonthe project the company will not receive any cash flows after t =1, but it will be able to sell the assets related to the projectfor $2.5 million after taxes at t = 1. Assuming the company has anoption to abandon the project, what is the expected NPV of theproject today? Round your answer to 2 decimal places. Do not roundyour intermediate calculations. Use the values in "millions ofdollars" to ascertain the answer.
$??? millions of dollars