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problem1. Emperor’s Clothes Fashions can invest $5 million in the new plant for producing invisible makeup. The plant has an anticipated life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2.1 million a year, and variable costs are $1.1 per jar. The product will be priced at $2.4 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 40%.

a. What is the project NPV under these base-case assumptions?

b. What is the NPV if variable costs turn out to be $1.4 per jar?

c. What is the NPV if fixed costs turn out to be $1.6 million per year?

d. At what price per jar would project NPV equal zero?

Financial Accounting, Accounting

  • Category:- Financial Accounting
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