FINANCE 1201-Coca-Cola Project Analysis-To show your work and to receive credi
Coca-Cola Project AnalysisTo show your work and to receive credit, please use Excel cell formulas,financial functions or algebraic time value of money equations to answer thesequestions in your spreadsheet.Coca-Cola is considering jumping on the pomegranate bandwagon by producing PomaCola and Pomegranate Sprite carbonated beverages in 2016 (t=1). New productionequipment and facilities costing $30 million will be required in 2015 (t =0) and fall intothe 5-year straight-line depreciation class. Additional net working capital of $5 millionwill also be needed in 2015. Here are sales projections for the proposed projects.Year Expected New Pomegranate Sales2016 $22 million2017 $30 million2018 $25 million2019 $20 million Projected operating costs (other than depreciation) are 73% of sales for the newbeverages. However, Coca-cola estimates that projected sales for other carbonatedbeverages will fall $5 million in 2016, $9 million in 2017, $7 million in 2018, and $4million in 2019 if they introduce the new beverages. Projected operating costs for theseexisting beverages are 68% of sales. At the end of 2019, the project will end and theproduction equipment and facilities could be sold for an estimated $10 million.Coca-Cola’s marginal tax rate is 40% and this is an average risk projectfor the company giving the project a WACC of 9%. Answer the following.1. What is the initial cost of the project?2. What are the expected operating cash flows for 2016 thru 2019?3. What is the expected end of project termination cash flow at the end of 2019?4. Calculate the NPV and IRR for the proposed project.5. Should Coca-Cola go ahead with this project? Explain your answer.
