Problem 10-9 Scenario Analysis (LO3) The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: $80 $60 $ 440,000 40,000 units per year However, you recognize that some of these estimates are subject to error. Suppose each variable turns out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.1 million, which will be depreciated straight-line over the -project life to a final value of zero. The firm's tax rate is 21%, and the required rate of return is 14%. a. What is project's NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project's NPV in the worst-case scenario?

Problem 10-9 Scenario Analysis (LO3) The most likely outcomes for a particular project are estimated as follows: However, you recognize that some of these estimates are subject to error. Suppose each variable turns Jout to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.1 million, which will be depreciated straight-line over the _project life to a final value of zero. The firm's tax rate is 21%, and the required rate of return is 14%. o. What is project's NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project's NPV in the worst-case scenario? 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 $2.6 million a year, and variable costs are $1.40 per jar. The product will be priced at $2.70 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, and the tax rate is 30%. o. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $1.60 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $2.4 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar would the project's NPV equal zero? Note: Enter your answer in dollars, not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places