A beauty product company is developing a new fragrance named Happy Forever. There is a probability of

Question:

A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.5 that consumers will love Happy Forever, and in this case, annual sales will be 1 million bottles; a probability of 0.4 that consumers will find the smell acceptable and annual sales will be 200,000 bottles; and a probability of 0.1 that consumers will find the smell weird and annual sales will be only 50,000 bottles. The selling price is $38, and the variable cost is $8 per bottle. Fixed production costs will be $1 million per year and depreciation will be $1.2 million. Assume that the marginal tax rate is 40 percent. What are the expected annual incremental cash flows from the new fragrance?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamentals of corporate finance

ISBN: 978-0470876442

2nd Edition

Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates

Question Posted: