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1. Suppose that you are considering the acquisition of factory equipment that specializes in the manufacture of hair trimmers. The Trimmer is marketed on television
1. Suppose that you are considering the acquisition of factory equipment that specializes in the manufacture of hair trimmers. The Trimmer is marketed on television for $9.99, is battery operated, and uses a swirling blade much like the Norelco razor. The factory manufactures 1,000,000 units per year, sells the trimmer to the wholesaler for $6.37 per unit, and has a cost of manufacture of $1.87 per unit. Furthermore, it will cost $1,000,000 per year to rent space for the factory in an industrial complex. The expected life of the factory equipment is 15 years, demand is estimated to be steady, and the tax rate is 28%. What is the NPV and IRR if you pay $25,000,000 for the factory equipment and your required return is 15% (after-tax)? Assume the equipment cost is depreciated over 15 years on a straight-line basis with no residual or salvage value at the end. 2. Conduct a sensitivity analysis of the trimmer factory in the problem above. Assume the following scenarios: a) Price increases by 10% b) Demand increases by 10% C) Price increases by 10% and demand increases by 10% Find the NPV and IRR for each scenario. Show a detailed pro-forma financial model. You should not need Excel to do this problem. 3. For problem 1, conduct a NPV breakeven analysis for the following 3 inputs: Units a. b. Price C. Rent
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