Course Solutions Uncategorized 5 Sensitivity Analysis Emperor S Clothes Fashions Invest S5 Million New Plant 6 Million Ja Q34208277

5 Sensitivity Analysis Emperor S Clothes Fashions Invest S5 Million New Plant 6 Million Ja Q34208277

Investment analysis question 2.5
5. Sensitivity Analysis. Emperors Clothes Fashions can invest S5 million in a new plant for 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depreciated straight-ine over 5 years to a salvage value of zero. The opportunity cost of capital is 12 percent, and the tax rate is 40 percent. a. What is project NPV under these base-case assumptions? b. What is NPV if variable costs turn out to be $1.20 per jar? c.What is NPV if fixed costs turn out to be S1.5 mion per year? d. At what price per jar would project NPV equal zero?5.

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