Mr. Shuaige Fashions can invest $5 million in a new plant for producing invisible plant has an expected life of five years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depreciated straight-line over five 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 $1.10 per jar? c. What is NPV if fixed costs turn out to be $1.8 million per year? d. At what price per jar would project NPV equal zero?
Mr. Shuaige Fashions can invest $5 million in a new plant for producing invisible plant has an expected life of five years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depreciated straight-line over five 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 $1.10 per jar? c. What is NPV if fixed costs turn out to be $1.8 million per year? d. At what price per jar would project NPV equal zero?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 2E
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![Mr. Shuaige Fashions can invest $5 million in a new plant for producing invisible makeup.
plant has an expected life of five years, and expected sales are 6 million jars of makeup a year.
Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced
at $2 per jar. The plant will be depreciated straight-line over five 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 $1.10 per jar?
c. What is NPV if fixed costs turn out to be $1.8 million per year?
d. At what price per jar would project NPV equal zero?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc61a5d7-7e46-42e0-9d49-1ea61d0fa8b1%2F327e3a7f-9429-42d4-aabe-f61aba892178%2F0ugqc3e_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Mr. Shuaige Fashions can invest $5 million in a new plant for producing invisible makeup.
plant has an expected life of five years, and expected sales are 6 million jars of makeup a year.
Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced
at $2 per jar. The plant will be depreciated straight-line over five 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 $1.10 per jar?
c. What is NPV if fixed costs turn out to be $1.8 million per year?
d. At what price per jar would project NPV equal zero?
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