Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

How to do d and what is the answer to it? Emperor's Clothes Fashions can invest $6 million in a new plant for producing invisible

image text in transcribed

How to do d and what is the answer to it?

Emperor's Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $3 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.40 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? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) NPV $ 3.33 million b. What is NPV if variable costs turn out to be $2.60 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) NPV $ 1.73 million c. What is NPV if fixed costs turn out to be $2.2 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) NPV $ 5.14 million d. At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.) Price $ 1.91 per jar

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Professionals Handbook Of Financial Risk Management

Authors: Lev Borodovsky, Marc Lore

1st Edition

0750641118, 978-0750641111

More Books

Students also viewed these Finance questions