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.

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
icon
Related questions
Question

Vijay 

Problem 10-8 Sensitivity Analysis (LO3)
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 decimal
places.
a. NPV
b. NPV
c. NPV
d. Price
Transcribed Image Text:Problem 10-8 Sensitivity Analysis (LO3) 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 decimal places. a. NPV b. NPV c. NPV d. Price
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Break-even Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education