Data In order to produce the new product, Vitasoy will acquire new equipment at

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 zero

Explanation / Answer

  

Year 1 2 3 4 5 A Sales units 5000 7000 10000 8000 4000 B Sale price 1.6 1.6 1.75 1.75 1.75 C Amount   AxB 8000 11200 17500 14000 7000 D Cost of Goods Sold (75% of Sales) 6000 8400 13125 10500 5250 E Gross Profit C-D 2000 2800 4375 3500 1750 F Operating Expenses (6% of C) 480 672 1050 840 420 G Depreciation (5000000/5) 1000 1000 1000 1000 1000 H EBIT (E-F-G) 520 1128 2325 1660 330 I Tax (40% 0f H) 208 451.2 930 664 132 J PAT (H-I) 312 676.8 1395 996 198 K Add: Dep 1000 1000 1000 1000 1000 L Cash Profit 1312 1676.8 2395 1996 1198 Present Value factors @10% 0.90909 0.82645 0.75131 0.68301 0.62092 Present value of cash flows 1192.73 1385.79 1799.4 1363.29 743.864 initial investment -5000 Net present value 1485.07 Net Working Capital Projections Year 1 2 3 4 5 Sales units 5000 7000 10000 8000 4000 Sale price 1.6 1.6 1.75 1.75 1.75 Amount 8000 11200 17500 14000 7000 Cost of Goods Sold 6000 8400 13125 10500 5250 Gross Profit 2000 2800 4375 3500 1750 Operating Expenses 480 672 1050 840 420 Receivables(15% sales) 1200 1680 2625 2100 1050 Cash 2% (sales) 160 224 350 280 140 Inventory 3% of Sales 240 336 525 420 210 Payables 15% of COGS 900 1260 1968.75 1575 787.5 Net working capital ( CA- CL) Current Assets 1600 2240 3500 2800 1400 Current Liablities 900 1260 1968.75 1575 787.5 Net working capital ( CA- CL) 700 980 1531.25 1225 612.5

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