what about part e
CHAPTER 6 Capital Budgeting: Valuing Business Cash Flows 215 quantity that the company needs to sell in order to be profitable if the Vice President's suggestion is accepted? e. The Marketing Vice President would like some sensitivity analysis done. He asks, "What would be the NPV of the project if annual unit sales vary from 400,000, 450,000, ..., 900,000 and if the unit price per bar varies from $1.20, $1.30, ..., $1.70?" Show the Data Table that answers his question. 10. (Cash-flow analysis) The "Less Is More" company manufactures swimsuits. The company is considering expanding to the bathrobe market. The proposed investment plan includes: Purchase of a new machine: The cost of the machine is $150,000, and its expected life span is 5 years. The machine will be depreci- ated to zero salvage value, but the chief economist of the company estimates that it can be sold for $20,000 at the end of 5 years. Advertising campaign: The head of the marketing department esti- mates that the campaign will cost $80,000 annually. Fixed costs: Incremental fixed costs of the new department will be $40,000 annually. Variable costs: First-year variable costs are estimated at $30 per bathrobe, but due to the expected increase in labor costs, they are expected to rise at 5% per year. Price per bathrobe: Each of the bathrobes will be sold at a price of $45 at the first year. The company estimates that it can raise the price of the bathrobes by 10% in each of the nufacture company manufactu hase of a new machi cost of the machine years to zero salva ine for only 5 years at the end of 5 years b. What is it ! Tu discount rate is 12% and corporale u 9. (Cash-flow analysis) The "Cold and Sweet" (C&S) comne ice cream bars. The company is considering the purchase that will top the bar with high-quality chocolate. The cost $900,000. The machine will be depreciated over 10 years value. However, the company intends to use the machine f Management thinks that the sale price of the machine at the will be $100.000. The machine can produce up to 1 million ice cream bars marketing director of C&S believes that if the company will si on advertising in the first year and another $10,000 in each of th years, the company will be able to sell 600,000 bars for $1.30 each of producing each bar is $0.50, and other costs related to the new are $40,000 annually. C&S's cost of capital is 14%, and the com rate is 30%. m bars annually. The v will spend $30.000 ch of the following $1.30 each. The cost to the new products and the corporate tax a. What are the capital gains/losses from selling the machine after 5 years? b. What is the NPV of the project if the marketing director's projec- tions are correct? c. What is the minimum price that the company should charge for each bar if the project is to be profitable? Assume that the price of the bar does not affect sales. d. The C&S Marketing Vice President suggested canceling me tising campaign. In his opinion, the company sales will reduced significantly due to the cancellation. What is the company sales will not be hlation. What is the minimum
