The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing traditional line of Fizzy beverages. Project 2: introduction of a new "healthy" line of beverages. The company has already spent $1,400,000 on research into the feasibility of these projects and has arrived at the following financial projections. Both projects are estimated to have a life of 5 years. The required fixed asset investment or capital spending for project 1 is $30,000,000 and for project 2 is $35,000,000. Fixed assets will be depreciated straight line to zero. Fixed asset salvage value estimate for project 1 is $6,200,000 and for project 2 is $8,500,000 In order to support anticipated sales, either project will require an increase in inventory of $8,600,000, an increase in accounts receivable of $2,800,000, and an increase in accounts payable of $6,300,000 Cost of goods sold is projected at 35% of sales for either project. Selling, general and administrative (SG&A) expenses for project 1 is 12% of sales and for project 2 is 15% of sales. The higher SG&A % for project 2 is due to higher anticipated marketing expenses . . . The cost of capital applicable to either project is estimated at 8%. The firm's corporate tax rate is 35% The sales projections for both projects are as follows: Year 0 . Project 1: Traditional (Fizzy) Line Project 2: "Healthy" Line Year 5 Year 1 Year 2 Year 3 Year 4 14,500,000 15,500,000 16,200,000 16,700,000 17,000,000 17,500,000 18,500,000 19,400,000 19,800,000 20,500,000 Evaluate the two capital investment project alternatives and make your recommendation using: a). Net Present Value (NPV) b). Internal Rate of Return (IRR) c). Modified Internal Rate of Return (MIRR) The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing traditional line of Fizzy beverages. Project 2: introduction of a new "healthy" line of beverages. The company has already spent $1,400,000 on research into the feasibility of these projects and has arrived at the following financial projections. Both projects are estimated to have a life of 5 years. The required fixed asset investment or capital spending for project 1 is $30,000,000 and for project 2 is $35,000,000. Fixed assets will be depreciated straight line to zero. Fixed asset salvage value estimate for project 1 is $6,200,000 and for project 2 is $8,500,000 In order to support anticipated sales, either project will require an increase in inventory of $8,600,000, an increase in accounts receivable of $2,800,000, and an increase in accounts payable of $6,300,000 Cost of goods sold is projected at 35% of sales for either project. Selling, general and administrative (SG&A) expenses for project 1 is 12% of sales and for project 2 is 15% of sales. The higher SG&A % for project 2 is due to higher anticipated marketing expenses . . . The cost of capital applicable to either project is estimated at 8%. The firm's corporate tax rate is 35% The sales projections for both projects are as follows: Year 0 . Project 1: Traditional (Fizzy) Line Project 2: "Healthy" Line Year 5 Year 1 Year 2 Year 3 Year 4 14,500,000 15,500,000 16,200,000 16,700,000 17,000,000 17,500,000 18,500,000 19,400,000 19,800,000 20,500,000 Evaluate the two capital investment project alternatives and make your recommendation using: a). Net Present Value (NPV) b). Internal Rate of Return (IRR) c). Modified Internal Rate of Return (MIRR)
Expert Answer:
Answer rating: 100% (QA)
To evaluate the two capital investment project alternatives Project 1 expansion of the existing trad... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Tech Giant Inc. (TGI) is evaluating a proposal to acquire Fusion Chips, a young company with an interesting new chip technology. This technology, when integrated into existing TGI silicon wafers,...
-
Carlton plc is considering two alternative investment projects one for the expansion of its existing business, and another for diversification into petroleum products. These are mutually exclusive...
-
0 out of 3 points On 30 June 2019, Asahi Ltd has entered into an agreement to lease a beer-making machine to Hite Ltd. The lease agreement details are as follows: . lease term is 5 years estimated...
-
Refer to Practice 17-8. Compute pension expense for the year.
-
Corporate culture is an element of the monitoring component of the COSO Framework. (T/F).
-
Draw a cash flow diagram of any investment that exhibits both of the following properties: 1. The investment has a 4-year life. 2. The investment has a 10 percent/year internal rate of return.
-
(Pension Expense, Journal Entries for 2 Years) Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2010 and 2011. (a)...
-
Consider the Solow model we studied in class, with the production function given by: Y =AKN1. tttt In this question, we distinguish between the labor force (L) and the total population (Pop). The...
-
Rosh Corporation is planning to issue bonds with a face value of $800,000 and a coupon rate of 8 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31....
-
(a) Consider the mechanical system (shown below in Figure Q4a) is released from rest when = 180, and the uncompressed spring of stiffness k = 1500 N.m at this instance is just touching the underside...
-
A TK 1 , 0 0 0 - face - value bond has a current market price of TK 9 3 5 , an 8 percent coupon rate, and 1 0 years remaining until maturity. Interest payments are made semiannually. What is the...
-
Are you someone who is affected by the hostile media effect or do you know someone who is? How do you react when you see balanced news reports that include political views that you don't like? Are...
-
How do lambda expressions contribute to the principles of declarative programming and functional purity, enabling the specification of computations through function composition and the application of...
-
In the context of software testing and quality assurance, discuss strategies for designing effective test cases and test suites that exercise different branches and conditions within "if" statements,...
-
The cost - volume - profit analysis ( CVP ) is based on the assumption that there are linear relationships among all cost and revenue variables. This linearity suggests practical and conceptual...
-
A bank statement provided by the bank includes: Multiple Choice A list of outstanding checks. A list of petty cash amounts. The beginning and the ending balance of the depositor's account. A listing...
-
Why is homeostasis defined as the "relative constancy of the internal environments? Does negative feedback or positive feedback tend to promote homeostasis?
-
Refer to the information provided in problem 8.23. Required (a) Prepare a process cost report using the FIFO method. (b) Explain how a standard cost report would differ from the FIFO report you just...
-
Becky Tan is the CFO at Frosters Systems, a diversified company with eight different business units (divisions). Becky has been asked by the CEO to develop a shared bonus pool system. Required What...
-
Consider the carbon footprint of an airline such as Qantas. Could an airline ever become carbon neutral or positive? Explain. What about a botanical garden? Discuss.
-
The most appropriate response to Nkomos Question 1 would be that the present value of future residual earnings is expected to be: A. zero. B. positive. C. negative. Mangoba Nkomo, CFA, a senior...
-
The most appropriate response to Nkomos Question 2 would be that the firms return on equity (ROE ) is: A. equal to the firms cost of equity. B. lower than the firms cost of equity. C. higher than the...
-
Based upon the information in Exhibit 2, the intrinsic value per share of the equity of Jackson Breweries is closest to: A. R97.67. B. R130.22. C. R186.03. Mangoba Nkomo, CFA, a senior equity analyst...
Study smarter with the SolutionInn App