onrooption command option 4The University of Adelaide Topic 4 Tutorial Questions TOPIC 4 CASH FLOW ESTIMATES AND RISK ANALYSIS TUTORIAL QUESTIONS Question 1 Syed Ali's Smokes can invest $5 million in a new plant for producing odour free tobacco. The plant has an expected life of 5 years, and expected sales are 6 million packs of cigarettes a year. Fixed costs are $2 million a year, and variable costs are S1 per pack. The product will be priced at $2 per pack. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The real opportunity cost of capital is 10 percent and the tax rate is 40 percent. (a) What is the project NPV under these base-case assumptions? (b) What is the NPV if variable costs turn out to be $1.20 per pack? (c) What is the NPV if fixed costs turn out to be $1.5 million per year? At what price per pack will the project NPV equal zero? (d) Question 2