Emperor's Clothes Fashions can invest $8 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 9 million jars of makeup a year. Fixed costs are $2.9 million a year, and variable costs are $2.10 per jar. The product will be priced at $3.10 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 $2.40 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 $2.2 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 b. NPV c. NPV d. Price

Emperor's Clothes Fashions can invest $8 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 9 million jars of makeup a year. Fixed costs are $2.9 million a year, and variable costs are $2.10 per jar. The product will be priced at $3.10 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 $2.40 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 $2.2 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 b. NPV c. NPV d. Price

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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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 $3.1 million a year, and variable costs are $1.20 per jar. The product will be priced at $2.90 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 40%. a. What is project NPV under these base-case assumptions? (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 $2.00 per jar? (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 $2.8 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) d. At what price per jar would project…
Emperor's Clothes Fashions can invest $7 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 8 million jars of makeup a year. Fixed costs are $2.1 million a year, and variable costs are $1.20 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 40%. 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 $1.80 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 $1.7 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…
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…
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