Find the NPV for the new project (Zero Calories Drink) after you do table for ca
ID: 2726333 • Letter: F
Question
Find the NPV for the new project (Zero Calories Drink) after you do table for cash flow 5 years (Please i need correct answer )
Hola Kola Project life 5 years Banck loan 5 years loan Annual intrest 16% dabt in capita 20% equity in capital 80% Weighted Average Cost Of Capital 18.2% The estimated sales of Zero-Carbonates by the consultant per month 600,000 liters price per liter 5 pesos This volume of Sales at the same price till 5 years Cost of the market study 5,000,000 pesos Cost of the machines + installation 50,000,000 pesos Depreciation in straight in next five years/per year 9,200,000 pesos Cost of the Lease per year 60,000 pesos Proposed number of inventory days 30 Proposed number of collection days 45 Proposed number of payable days 36 Working capital days 39 Raw material needed for each litre of Sodas 1.8 pesos Labor Cost per month 180000 pesos Energy Cost per month 50000 pesos Incremental General + Administrative Expenses Per Year 300000 pesos Overhead cost on new product launch 1% Existing erosion 800,000 Existing Tax Rate 30% Salvage Value 4,000,000Explanation / Answer
Since the company will raise capital for purchasing machinery in 20:80 debt to equity ratio, immediate equity cash flow is 80% of 50 million = 40 million pesos and the remaining 10 million pesos will be raised through a term loan. Let's assume that the term loan will have a repayment schedule where the principal will be repaid in 60 equal monthly installments and interest will be paid every month. Therefore, interest payable for a month = term loan outstanding balance of the previous month * 16% / 12.
The project will have a working capital cycle of 30 (inventory) + 45 (debtor) -36 (creditor) =39 days. Therefore, there will be a working capital gap of 39 days of sales every year. Since, debt is cheaper than equity, let's assume that this working capital requirement will be met through a working capital loan at the same interest rate i.e. 16%.
Since the cost of market study is already made and it does not influence if the project is to be undertaken or not, it is a sunk cost and will not be considered.
NPV is calculated based on actual cash flows. Therefore, depreciation of machinery is not relevant here.
Therefore, the repayment schedule of the term loan is:
Based on the above, the NPV calculation is as follows:
Therefore, the project should not be undertaken.
Month Outstanding balance Principal payable Interest payable 0 10,000,000.00 1 9,833,333.33 166,666.67 133,333.33 2 9,666,666.67 166,666.67 131,111.11 3 9,500,000.00 166,666.67 128,888.89 4 9,333,333.33 166,666.67 126,666.67 5 9,166,666.67 166,666.67 124,444.44 6 9,000,000.00 166,666.67 122,222.22 7 8,833,333.33 166,666.67 120,000.00 8 8,666,666.67 166,666.67 117,777.78 9 8,500,000.00 166,666.67 115,555.56 10 8,333,333.33 166,666.67 113,333.33 11 8,166,666.67 166,666.67 111,111.11 12 8,000,000.00 166,666.67 108,888.89 13 7,833,333.33 166,666.67 106,666.67 14 7,666,666.67 166,666.67 104,444.44 15 7,500,000.00 166,666.67 102,222.22 16 7,333,333.33 166,666.67 100,000.00 17 7,166,666.67 166,666.67 97,777.78 18 7,000,000.00 166,666.67 95,555.56 19 6,833,333.33 166,666.67 93,333.33 20 6,666,666.67 166,666.67 91,111.11 21 6,500,000.00 166,666.67 88,888.89 22 6,333,333.33 166,666.67 86,666.67 23 6,166,666.67 166,666.67 84,444.44 24 6,000,000.00 166,666.67 82,222.22 25 5,833,333.33 166,666.67 80,000.00 26 5,666,666.67 166,666.67 77,777.78 27 5,500,000.00 166,666.67 75,555.56 28 5,333,333.33 166,666.67 73,333.33 29 5,166,666.67 166,666.67 71,111.11 30 5,000,000.00 166,666.67 68,888.89 31 4,833,333.33 166,666.67 66,666.67 32 4,666,666.67 166,666.67 64,444.44 33 4,500,000.00 166,666.67 62,222.22 34 4,333,333.33 166,666.67 60,000.00 35 4,166,666.67 166,666.67 57,777.78 36 4,000,000.00 166,666.67 55,555.56 37 3,833,333.33 166,666.67 53,333.33 38 3,666,666.67 166,666.67 51,111.11 39 3,500,000.00 166,666.67 48,888.89 40 3,333,333.33 166,666.67 46,666.67 41 3,166,666.67 166,666.67 44,444.44 42 3,000,000.00 166,666.67 42,222.22 43 2,833,333.33 166,666.67 40,000.00 44 2,666,666.67 166,666.67 37,777.78 45 2,500,000.00 166,666.67 35,555.56 46 2,333,333.33 166,666.67 33,333.33 47 2,166,666.67 166,666.67 31,111.11 48 2,000,000.00 166,666.67 28,888.89 49 1,833,333.33 166,666.67 26,666.67 50 1,666,666.67 166,666.67 24,444.44 51 1,500,000.00 166,666.67 22,222.22 52 1,333,333.33 166,666.67 20,000.00 53 1,166,666.67 166,666.67 17,777.78 54 1,000,000.00 166,666.67 15,555.56 55 833,333.33 166,666.67 13,333.33 56 666,666.67 166,666.67 11,111.11 57 500,000.00 166,666.67 8,888.89 58 333,333.33 166,666.67 6,666.67 59 166,666.67 166,666.67 4,444.44 60 (0.00) 166,666.67 2,222.22Related Questions
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