Hard Drinks Ltd

Hard Drinks Ltd., a social software company, expects sales to be $20 million next year, $24 million the year after, $28 million in the following year, before settling down to $30 million thereafter. Operating profit margins are fixed at 20%. The corporate tax rate is 40%. Replacement capital asset investments will exceed depreciation by $1 million per year. Working capital will be reduced by $100,000 each year. New capital asset investment will be $500,000 each year. If Hard Drinks cost of capital is 10%, what is its total business value?

A) ($39.8)
B) $5.1
C) $18.6
D) $44.7
E) $145.3

Correct Answer:

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