Candy Crash is currently in negotiation with a large supermarket chain, Costca Limited, to supply its confectionery in a private label for Costca. Under the terms, Candy Crash is expected to supply confectionery to Costca every year for the next ten years.If Candy Crash proceeds with the supply of confectionery, the company needs to purchase ma-chinery to cope with the increase in production. New machinery is expected to cost $3,000,000,with an additional $500,000 installation and shipping costs. The machinery is expected to have a working life of 10 years. The company’s accounting policy is to depreciate using the straightline approach of 8% per year. It is expected that the new machinery can be sold for $150,000at the end of its useful life.If Candy Crash is to proceed with the supply of confectionery to Costca, it is expected thatthe yearly operating revenues would increase by $3,000,000 in year one. From year two onwards,it is expected that the increase in yearly operating revenues would grow at a rate of 6% per annum. Total variable costs associated with the increased production would be 65% of the increase in yearly operating revenues. The fixed costs associated with the increased production are expected to be $300,000 per year. However, as the private label confectionery’s selling priceis cheaper than Candy Crash’s brand, it is expected that Candy Crash’s existing operating revenues would fall by $500,000 per annum and existing operating costs would decrease by$325,000 per annum if Candy Crash proceeds with the supply of confectionery. Moreover, there would be an initial increase in net working capital of $300,000. From year one to year nine, networking capital is expected to increase by $20,000 per year. All the net working capitals can be recovered at the end of the project’s life. Given that this project’s risk level is not significantly different, you believe that it is appropriate to use the existing WACC of 13.5%.What is NPV, IRR and payback period?
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Given that this project’s risk level is not significantly different, you believe that it is appropriate to use the existing WACC of 13.5%.What is NPV, IRR and payback period?