Question: 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 $3.2 million a year, and variable costs are $2.80 per jar. The product will be priced at $4.10 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%.
a. What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
NPV $ million
b. What is NPV if variable costs turn out to be $3.10 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
NPV $ million
c. What is NPV if fixed costs turn out to be $3 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
NPV $ million
d. At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Price $ per jar