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 $2.4 million a year, and variable costs are $1.50 per jar. The product will be priced at $2.30 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? b. What is NPV if variable costs turn out to be $1.60 per jar? c. What is NPV if fixed costs turn out to be $2.2 million per year?
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 $2.4 million a year, and variable costs are $1.50 per jar. The product will be priced at $2.30 per jar. The plant will be
a. What is project
b. What is NPV if variable costs turn out to be $1.60 per jar?
c. What is NPV if fixed costs turn out to be $2.2 million per year?
d. At what price per jar would project NPV equal zero?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
