Selling, general, and administrative expenses: 10% of sales  Tax rate: 35% Assume a WACC of 10%. Should the coffee packaging pr

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas. (6-12 slides, 150-200 words speaker notes)

Apix is considering coffee packaging as an additional diversification to its product line. Here’s information regarding the coffee 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 terminal year 
  • Project and equipment life: 5 years 
  • Sales: $27 million per year for five years 
  • Assume 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 that you required that was not provided to you? 
  • What financial figure do you believe was the determinant to your decision and why? 
  • How would you be able to apply this particular financial information to other situations? 
  • Discuss risk methodologies used in capital budgeting.

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