Hi! I'm contacting you because I'm doing an exercise but I don't have the solutions of these questions. Can you solve them and give me the solutions please.

Question 2:The marketing department says that BFP's customers have a very high level of product fidelity and usually do not change fragrances. Sales of Voodoo Love will principally come from new customers. However, BFP considers that 10% of sales may come from existing customers switching to Voodoo Love. What is the Voodoo Love project's new NPV taking into the risk of cannibalization?

Question 3: What is the break-even level for the following inputs: Sales price per unit, Cost price per unit, number of units sold, cost of capital, and cannibalization rate? The management team is concerned that the assumptions concerning some inputs may not be fully accurate and asks you to estimate how changes in those assumptions would change the decision to invest or not in the project.

Question 4: The management team is considering changes in the pricing strategy. If it increases the sale price from $45 to $55, the number of flacons sold per month would decrease to 2,500 units. Alternatively, if it decreases the sale price from $45 to $35, the number of flacons sold per month would increase to 3,500 units. Should BFP stick to its initial pricing strategy or change to any of the two alternative pricing strategies?

Thanks in advance!

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VOODOO LOVE (courtesy of Denis Gromb) sh Th is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Bourbon French Parfums (BFP) is a family-owned company specializing in customized high quality fragrances. Founded in 1843 by French 'parfumeur' August Doussan and located in the 'Vieux Carre' of New Orleans, it had long catered to the city's leading families. Only in the 1980s did BFP establish a US-wide distribution network. BFP contemplates commercializing a new fragrance, Voodoo Love. Based on previous experience, Marketing believes 3,000 flacons can be sold per month over the next 5 years for $45 per flacon. Early design and marketing studies having already cost $50,000 show that launching Voodoo Love would require new equipment costing $2.5M. BFP would finance this investment with $1M from its cash reserves and a $1.5M 10-year loan at 9%. The equipment, if properly maintained, would allow BFP to produce 3,000 flacons per month for the next 5 years, after which it would have zero market value and would have to be scrapped. (BFP uses straight line depreciation). Production would be carried out in facilities BFP currently owns and rents at $5,000 per month (before tax) to another firm. The new production would increase labor costs by $12,000 per month, energy costs by $3,000 per month and general overhead expenses by $10,000 a year. Accounting estimated that the pro-rata share of general and administrative expenses imputed to Voodoo Love would be $75,000 a year. Purchases thought raw materials would cost $10 per flacon. Smooth production would require a raw material inventory of about 1 month of purchases. On average, BFP's accounts receivable were collected after 90 days (3 months of sales) and its accounts payable (raw materials only) were also settled after 90 days. Given the financial manager's recommended cost of capital of 12%, and BFP's marginal tax rate of 40%, what is the Voodoo Love project's NPV? 1 https://www.coursehero.com/file/11721022/ECON-1745-Spring-2014-Lecture-11-Pt-2/ Powered by TCPDF (www.tcpdf.org)