Coca-Cola Amatil (CCL)has a Weighted Average Cost of Capital of 11

question 97

Multiple Choice

Coca-Cola Amatil (CCL) has a weighted average cost of capital of 11%. CCL is considering investing in a new plant that will save the company $30 million over each of the first two years, and then $25 million each year thereafter. If the investment is $150 million, what is the net present value (NPV) of the project?

• A)-$51 million
• B)$86 million
• C)-$41 million
• D)$45 million

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Definitions:

Utility Function

A numerical model that explains how a consumer gains pleasure or usefulness from using goods and services.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, holding the consumer's utility level constant.

Income Effect

The alteration in the income of a person or the economy, and its effect on the amount of a product or service that is requested.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, causing consumers to substitute away from more expensive goods towards cheaper ones.