A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.52 that consumers will love Happy Forever, and in this case, annual sales will be 1.10 million bottles; a probability of 0.38 that consumers will find the smell acceptable and annual sales will be 216,000 bottles; and a probability of 0.10 that consumers will find the smell unpleasant and annual sales will be only 49,000 bottles. The selling price is $40, and the variable cost is $9 per bottle. Fixed production costs will be $1.07 million per year, and depreciation will be $1.19 million. Assume that the marginal tax rate is 40 percent. What are the expected annual incremental after-tax free cash flows from the new fragrance?

A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.52 that consumers will love Happy Forever, and in this case, annual sales will be 1.10 million bottles; a probability of 0.38 that consumers will find the smell acceptable and annual sales will be 216,000 bottles; and a probability of 0.10 that consumers will find the smell unpleasant and annual sales will be only 49,000 bottles. The selling price is $40, and the variable cost is $9 per bottle. Fixed production costs will be $1.07 million per year, and depreciation will be $1.19 million. Assume that the marginal tax rate is 40 percent. What are the expected annual incremental after-tax free cash flows from the new fragrance?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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am. 133.
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