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Voice-Soft Inc. is trying to determine whether to open a new product line, Voice-Write, a speech-to-text product, which is expected to be competitive for four years. The cost of the new capital equipment including shipping and installation is $3100. The equipment will last for 4 years. They use simple straight line depreciation and the salvage value is $400. For 2016 to 2019, sales are expected to be $4000, 4000, 4200, and 4200; and operating expenses, $2800, $2800, $2700, $2700. The company is expecting to lose operating income of $200 per year due to Voice-Write cannibalizing its current product, Voice-Speak. Regardless of your answer to part I above (WACC calculation) assume Voice-Soft has a tax rate of 40% and a weighted average cost of capital (WACC) of 12

Complete the Project cash flow statement below and then answer questions.

2015

2016

2017

2018

2019

Sales

Operating Expenses

Opportunity Costs

Depreciation

Operating Income (EBIT)

Taxes

Operating Income after taxes

Depreciation

Cash Flow

Salvage Value

Salvage Tax

Net Salvage Value

Initial capital Investment

Project Cash Flow

Determine the Net Present Value, IRR and should Voice soft make an investment? why?

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Casey Durgan
Casey DurganLv2
29 Sep 2019

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1. What is the initial cost of the project?

2. What are the expected operating cash flows for 2016 thru 2019?

3. What is the expected end of project termination cash flow at the end of 2019?

4. Calculate the NPV and IRR for the proposed project.

5. Should Coca-Cola go ahead with this project? Explain your answer.

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Today ---------------------------Year 1 Year 2 Year 3 --------------------------End

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2. Sell Old Assets

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