Incremental cash flow problem

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Incremental Cash Flow Problem

As the marketing manager, you have been tasked to consider expanding the detergent product line. Brand XYZ is a discount detergent product that expects to generate $50 million dollars in sales per year for the next ten years. To create product, the firm will have to spend an extra $40 million in property, plant and equipment. The company spent already $3 million on marketing and it expects that the new brand will eat into existing sales of another detergent. You estimate that this cannibalization is about $5 million per year. Costs are 50% of sales. Working capital is 30% of next year sales for all products of the firm. The tax rate is 40% and assume straight line depreciation. Assume that the appropriate discount rate is 11%. The expected life of the product and property, plant and equipment is 10 years. Assume no salvage value. Determine the NPV and IRR of the project.

Reference no: EM132692928

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