Reference no: EM132467679

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%.

Question 1: Should the coffee packaging project be accepted? Why or why not? Compute the project's IRR and NPV.