The Sody Soda Company is looking to expand its offerings of soft drinks into the sweet tea market. In order to add this product line, the company will need to purchase a manufacturing facility and invest additional money into upgrades of the facility, as well as the equipment necessary to manufacture the new sweet tea line. The anticipated start up costs are $2.75 million, with a cost of capital of 3.75%. The project manager predicts cash flows from this new product line will be $200,000 for the first year, with an increase of $100,000 for each subsequent year. Management wants to know if the project should be persued, or if the company will ultimately lose money from the project, over a 5 year time period. What is the projected NPV for this expansion? Do you recommend management pursue the project, or pass on the opportunity? Why?

Answer rating: 100% (QA)

To determine the projected NPV Net Present Value for the expansion of the sweet tea product line we ... View the full answer