Data In order to produce the new product, Vitasoy will acquire new equipment at
ID: 2808194 • Letter: D
Question
Data In order to produce the new product, Vitasoy will acquire new equipment at a cost of $5 million It will depreciate this capital expenditure over the 5 years of this project on a straight line basis This means the project will have an annual depreciation expense of $5M Annual Depreciation =-= -$1M The new energy drink is expected to be marketed for 5 years. Over those 5 years, Vitasoy projects the following sales figures End of Year Units Sold (in 000s) 5000 7000 10000 8000 4000 Av. Price Per Unit 1.60$1.60 $1.75 $1.75 $1.75 Sale (in $000s) $8,000 $11,200 $17,500 $14,000 $7,000 In terms of costs, Vitasoy projects the following: Gross Profit Margin: 25%. This means that it expects the cost of producing each can (COGS) to be 75% of the sale price. ·Operating Expenses: 6% of sales (listed as selling, general, and administrative) Corporate Tax Rate: 40% . Opportunity Cost of Capital: 10% In terms of Net Working Capital, Vitasoy projects the following: . Cash: 2% of sales . Inventory: 3% of sales . Receivables: 15% of sales Payables: 15% of cost of COGS » Year 5: Assume all four items go back to zeroExplanation / Answer
Statement of Net working capital(Rs. in Thousand)
0
(Rs. In Thousand)
Free cash flow= EBIT*(1-tax rate)+Depreciation- change in working capital- capital expenditure
=
Total Pv=1101.70+1071.15+1099.45-936.393+1116.55
5325.223
NPV= PRESENT VALUE OF INFLOW- INITIAL INVESTMENT
=5325.223-5000
=325.223
Unlevered free cash flow= EBIT-TAX
Particular 1 2 3 4 5 Cash 2% of sales $160 $224 $350 $28000
Inventory 3% of sales $240 $336 $525 $420 0 Receivable 15% of sales $1200 $1680 $2625 $2100 0 Total Current assets $1600 $2240 $3500 $2800 0 Less:Current Liability: Payables 15% of Cost of good sold $900 $1260 $1968.96 $1575 0 Net Working Capital $700 $980 $1531.04 $1225 0Related Questions
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