Calculating Return on Investment for this new low calorie product. You have the master budget, cash budget, Cash flow info with NPV. Based on the information provided can this be calculated?
If capital equipment is involved, is there a lease or buy decision?
Because Pepsico already owns much of the necessary equipment in its beverage division, only one beverage filling machine will be purchased to handle the addition of PepsiTrue in the beverage line.
The new filling machine will be purchased for $30,000 and paid as follows: $15,000 in the first quarter of the year and $15,000 in the second. The machine will have 24 filler heads and an adjustable speed that will easily handle the filling capacity needed for PepsiTrue production.
If a new business or program, calculate and show the present value of the business or program using NPV analysis based on the expected future cash flows (possibly from cash budget or cash flow statement).
The new filling machine has an estimated useful life of five years and a residual value of $3,000. Annual operating cash inflows are expected to increase in the following manner:
Year 1 $828,116
Year 2 831,400
Year 3 850,100
Year 4 850,222
Year 5 852,750
Pepsico uses straight-line depreciation and the minimum rate of return is 12 percent. (See appendix A for a table showing the present value of $1 to be received at the end of a given number of time periods.)
With a net present value of $2,995,387 it is obvious that the price of the filler machine will be well worth its cost.
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