FDC has decided to offer Unicorn Cookies. We paid a non-refundable, $120,000 for a marketingsurvey to help us understand food trends prior to settling in on Unicorn as the next new cookieoption. FDC thinks that the new cookie will generate $300,000 in incremental revenue in year 1year and revenue will grow at 6%. Fixed costs will be $15,000 per year, and variable costs will beapproximately 20% of sales (lots of food coloring). The capital investment in the equipmentneeded to produce the new cookies will cost $200,000 and will be depreciated in a straight-linemanner for the 4 years of the cookie's life (if you think unicorn will really last that long). Thechange in net working capital will be the following, year zero= 10k increase (stocking up on theingredients, etc), year 1= 20k increase (really ramping up), year 2= 5k decease (beginning to getpaid), year 3 = 10k decrease, year 4 = 15k decrease. The firm has a tax rate of 21%. The requiredrate of return on projects with similar risk is 9%.Lay it out before you start- you get credit for this...Please calculate the 3 buckets of cash flows and total cash flow as well as the NPVWhat if fixed costs increased by 15%

Step 1: Step 2: Step 3: Step 4:

Answered: FDC has decided to offer Unicorn…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pappy's Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy's paid $170,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $885,000 per year. The fixed costs associated with this will be $224,000 per year, and variable costs will amount to 20 percent of sales. The equipment necessary for production of the Potato Pet will cost $950,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy's has a tax rate of 25 percent and a required return of 14 percent. a. Calculate the payback period for this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,…
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