Homework answers / question archive / Respond to the following scenario with your thoughts, ideas, and comments

Respond to the following scenario with your thoughts, ideas, and comments

Business

Share With

---

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas. (6-12 slides, 150-200 words speaker notes)

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.