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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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