1. ABC company can invest $9 million in a new plant for producing bread jam. The plant has an expected life of 5 years, and expected sales are 6 million jars of jam 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 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 $1.20 per jar?

c) What is the NPV if fixed costs turn out to be $1.5 million per year?