Apex is considering sugar packaging as an additional diversification to its product line. Here's information regarding the sugar 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 the terminal year

Project and equipment life: 5 years

Sales: $27 million per year for five years

Assume a 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 you required that was not provided to you?

What monetary figure do you believe was the determinant of your decision and why?

How would you be able to apply this detailed financial information to other situations?

Discuss risk methodologies used in capital budgeting.