Question: The Coka company is a soft drink company. Until today the company bought empty cans from an outside supplier that charges Coka $0.20 per can. In addition the transportation cost is $1,000 per truck that transports 10,000 cans. The Coka company is considering whether to start manufacturing cans in its plant. The cost of a can machine is $1,000,000 and its life span is 12 years. The terminal value of the machine is $160,000. Maintenance and repair costs will be $150,000 for every 3 year period. The additional space for the new operation will cost the company $100,000 annually. The cost of producing a can in the factory is $0.17. The cost of capital of Coka is 11% and the corporate tax rate is 40%.
a) What is the minimum number of cans that the company has to sell annually in order to justify self-production of cans?
b) Advanced: Use data tables in order to show the NPV and IRR of the project as a function of the number of cans.