Description
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Apix is considering coffee packaging as an additional diversification to its product line. Here’s information regarding the coffee packaging project:
- Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
- Project and equipment life: 5 years
- Sales: $27 million per year for five years
- Assume gross margin of 50% (exclusive of depreciation)
- Depreciation: Straight-line for tax purposes
- Selling, general, and administrative expenses: 10% of sales
- Tax rate: 35%
Assume a WACC of 10%.
Should the coffee packaging project be accepted? Why or why not? Compute the project’s IRR and NPV.
In addition, answer the following questions:
- Do you believe that there was sufficient financial information to make a solid decision on what to do?
- Was there further financial information that you required that was not provided to you?
- What financial figure do you believe was the determinant to your decision and why?
- How would you be able to apply this particular financial information to other situations?
- Discuss risk methodologies used in capital budgeting.
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Explanation & Answer
HiCheck the attached work . Let me know if there is any confusion..IN the slides each concept is self explained therefore there is no need for notes
Student Name:
Subject:
Date:
Smith
8th November 2016
The Net Present Value of the Project is – 0.997 Million.
The Internal Rate of Return of the project is 9.08%.
Analysis:
Based upon the values of NPV & IRR the project should
not be considered as the NPV is negative while the IRR
is less than the Cost of Capital.
Yes, With the given information, there...