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%. What is project NPV under these base-case assumptions? What is NPV if variable costs turn out to be $2.00 per jar? What is NPV if fixed costs turn out to be $2.8 million per year? At what price per jar would the project's NPV equal zero?
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
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What is project
NPV under these base-case assumptions? -
What is NPV if variable costs turn out to be $2.00 per jar?
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What is NPV if fixed costs turn out to be $2.8 million per year?
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At what price per jar would the project's NPV equal zero?
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