Emperor's Clothes Fashions can Invest $6 million in a new plant for producing Invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $2.6 million a year, and variable costs are $1.40 per jar. The product will be priced at $2.70 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, 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 $1.60 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 $2.4 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 decim places.

Emperor's Clothes Fashions can Invest $6 million in a new plant for producing Invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $2.6 million a year, and variable costs are $1.40 per jar. The product will be priced at $2.70 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, 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 $1.60 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 $2.4 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 decim places.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 6P: New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its...

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QUESTION 2 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. You are expecting to sell 3000 units per year. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight-line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Do a sensitivity analysis using different numbers of production units. Assume that number of units can be between 2400 and 3750 units. What is the minimum net present value based on the range of units expected to be sold?
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $65. The production cost of each heater is $50. The fixed cost of production is $40000. You are expecting to sell 8200 units per year. This project has an economic life of 7 years. The project requires an investment of $285000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 14 percent. The marginal corporate tax rate is 22 percent. Do a sensitivity analysis using different sales prices per unit. Assume that the sales price can be between $81.25 and $58.5. What is the maximum net present value based on the range of the sales price per unit? O 31036 O 476741 O 691022 O 305316
QUESTION 4 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % , 32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the total cash flows for the project.…
QUESTION 2 You are considering starting new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the working capital requirements for the…
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…
QUESTION 6 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 %,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the internal rate of return for this…
QUESTION 5 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the net present value of the project.
QUESTION 9: Chicago Food Services is considering installing a new refrigeration system that will cost $600,000. The system will be depreciated at a rate of 20% (Class 8) per year over the system's ten- year life and then it will be sold for $90,000. The new system will save $180,000 per year in pre-tax operating costs. An initial investment of $70,000 will have to be made in working capital. The tax rate is 35% and the discount rate is 10%. Calculate the NPV of the new refrigeration system. All calculations must be shown.
QUESTION 8 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the number of units at the operating cash flow break-even point.
QUESTION 7 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the number of units of production at the accounting (net profit) break-even point.
Engineering economy - ENGR 3322 The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system’s market value at the EOY five is negligible, and the MARR is 18% per year. Calculate the annual worth of the project. a. $ 9,750 b. $ 10,750 c. $ 11,750 d. None of the choices