Coca-Cola Amatil (CCL)has a weighted average cost of capital of 9%. CCL is considering investing in a new plant that will save the company $25 million over each of the first two years, and then $10 million each year thereafter. If the investment is $100 million, what is the net present value (NPV)of the project?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to find the discounted cash flows and subtract the initial investment.

Discounted cash flows can be calculated as follows:

- Year 1: $25 million / (1 + 0.09) = $22.94 million
- Year 2: $25 million / (1 + 0.09)^2 = $20.96 million
- Year 3 and onwards: $10 million / (1 + 0.09)^3 + $10 million / (1 + 0.09)^4 + ... = $68.58 million

Total discounted cash flows = $22.94 million + $20.96 million + $68.58 million = $112.48 million

NPV = $112.48 million - $100 million = $12.48 million

Therefore, the NPV of the project is $37.5 million.

Coca-Cola Amatil (CCL)has a Weighted Average Cost of Capital of 9