Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar would the project's NPV equal zero? Note: Enter your answer in dollars, not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places. a. NPV Answer is not complete. $4,884,400.77 × b. NPV c. NPV $ 96,703.45 d. Price $ 3.38
Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar would the project's NPV equal zero? Note: Enter your answer in dollars, not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places. a. NPV Answer is not complete. $4,884,400.77 × b. NPV c. NPV $ 96,703.45 d. Price $ 3.38
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1gM
Related questions
Question
Transcribed Image Text:Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5
years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar.
The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The
opportunity cost of capital is 10%, and the tax rate is 30%.
a. What is project NPV under these base-case assumptions?
Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places.
b. What is NPV if variable costs turn out to be $2.80 per jar?
Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places.
c. What is NPV if fixed costs turn out to be $3.3 million per year?
Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places.
d. At what price per jar would the project's NPV equal zero?
Note: Enter your answer in dollars, not in millions. Do not round intermediate calculations. Round your answer to 2 decimal
places.
a. NPV
Answer is not complete.
$4,884,400.77 ×
b. NPV
c. NPV
$
96,703.45
d. Price
$
3.38
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