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 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

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 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

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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Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $41,000 per boat. The variable costs will be about half that, or $20,000 per boat, and fixed costs will be $465,000 per year. The total investment needed to undertake the project is $3,100,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 11 percent on new projects. FC + OCF-TCX D 1-TC P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 21 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Cash break-even Accounting break-even Financial break-even
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?
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Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project. If the shop's tax rate is 22 percent and its discount rate is 19 percent, what is the NPV for this project?
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Discuss the overarching idea of Asset Liability Management and its key objectives. How does the process of Gap Analysis support Asset Liability Management?
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $21,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) ces 1. Depreciation expense 2. Incremental net operating income 3 Initial investment…

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