Reference no: EM131830165
Problem - DCF, sensitivity analysis, no income taxes. (CMA, adapted) Whimsical Corporation is an international manufacturer of fragrances for women. Management at Whimsical is considering expanding the product line to men's fragrances. From the best estimates of the marketing and production managers, annual sales (all for cash) for this new line is 900,000 units at $100 per unit; cash variable cost is $50 per unit; and cash fixed costs is $9,000,000 per year. The investment project requires $120,000,000 of cash outflow and has a project life of seven years.
At the end of the seven-year useful life, there will be no terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts.
Men's fragrance is a new market for Whimsical, and management is concerned about the reliability of the estimates. The controller has proposed applying sensitivity analysis to selected factors. Ignore income taxes in your computations. Whimsical's required rate of return on this project is 10%.
1. Calculate the net present value of this investment proposal.
2. Calculate the effect on the net present value of the following two changes in assumptions. (Treat each item independently of the other.)
20% reduction in the selling price 20% increase in the variable cost per unit
3. Discuss how management would use the data developed in requirements 1 and 2 in its consideration of the proposed capital investment.
Calculate the preliminary sample size
: The population has 2,620 inventory items valued at $12,625,000. Calculate the preliminary sample size
|
Product of independent
: Recall, from Subsection 2.16.4, the likelihood ratio statistic, Ln, which was defined as a product of independent, identically distributed random variables
|
Explain what is a virtual machine
: What is a virtual machine? Discuss this definition in terms of the Pep/7 computer. Describe the features of the Pep/7 CPU that we covered in this chapter.
|
What were the reasons for the great migration
: What were some of the risks involved for the African Americans who undertook the move?
|
Calculate the effect on the net present value
: At the end of the seven-year useful life, there will be no terminal disposal value. Calculate the effect on the net present value
|
What is percentage change in the bond price as result
: what is the percentage change in the bond’s price as a result of the 1 percent increase in interest rates?
|
Symmetric distribution
: Show that if X and Y are independent, identically distributed random variables then X - Y has a symmetric distribution.
|
List five operations that any machine language must include
: What does it mean when we say that a computer is a programmable device? List five operations that any machine language must include.
|
What are ethical issue involved with downloading source code
: What are the ethical issues involved with downloading the source code and replacing your name and information on the page and using it on your home page?
|