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Emperors Clothes Fashions can invest $5.02 million in a new plant for producing invisible makeup. The plant has an expected life of five years, and
Emperors Clothes Fashions can invest $5.02 million in a new plant for producing invisible makeup. The plant has an expected life of five years, and expected sales are 6.02 million jars of makeup a year. Fixed costs are $2.05 million a year, and variable costs are $1.05 per jar. The product will be priced at $2.05 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 $1.25 per jar? C) What is NPV if fixed costs turn out to be $1.55 million per year? D) At what price per jar would project NPV equal zero
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