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Homework answers / question archive / Caspian Sea Drinks is considering the production of a diet drink
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 $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.45 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.22 million per year and cost $2.48 million per year over the 10-year life of the project. Marketing estimates 15.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 35.00%. The WACC is 15.00%. Find the NPV (net present value).
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