Coca-Cola Amatil (CCL) has a weighted average cost of capital of 11%. CCL is considering investing in a new plant that will save the company $30 million over each of the first two years, and then $25 million each year thereafter. If the investment is $150 million, what is the net present value (NPV) of the project?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the cash flows generated by the project back to their present value using the weighted average cost of capital (11%). The cash flows for the first two years are $30 million each, and for the subsequent years, they are $25 million each. The initial investment is $150 million. Using a financial calculator, we get an NPV of approximately $86 million. Therefore, the best choice is C.

Coca-Cola Amatil (CCL) Has a Weighted Average Cost of Capital