Lululemon is considering investing in new machinery that will generate sustainably created athleisure shirts and pants....

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Lululemon is considering investing in new machinery that will generate sustainably created athleisure shirts and pants. The discount rate is 6%, and the initial investment in equipment $10 million. The machinery's economic life is 25 years and the equipment will be depreciated on a straight-line basis over the project's life and has no salvage value. The following financial information is estimated for production from the machinery: Sales price per shirt: $78 Sales price per pant: $128 Variable Costs per shirt: $3.15 Variable Costs per pant: $5.25 Fixed Costs of production per Year: $125,000 Tax Rate=22% Number of shirts sold per year: 50,640 Number of pants sold per year: 30,250 1. Question: Assume that your projection for price of shirts, fixed costs, and variable costs of pants were only accurate within +/- 15%. Calculate the best-case and worst-case NPV figures. Do you think Lululemon should take on this project? Why or why not? Lululemon is considering investing in new machinery that will generate sustainably created athleisure shirts and pants. The discount rate is 6%, and the initial investment in equipment $10 million. The machinery's economic life is 25 years and the equipment will be depreciated on a straight-line basis over the project's life and has no salvage value. The following financial information is estimated for production from the machinery: Sales price per shirt: $78 Sales price per pant: $128 Variable Costs per shirt: $3.15 Variable Costs per pant: $5.25 Fixed Costs of production per Year: $125,000 Tax Rate=22% Number of shirts sold per year: 50,640 Number of pants sold per year: 30,250 1. Question: Assume that your projection for price of shirts, fixed costs, and variable costs of pants were only accurate within +/- 15%. Calculate the best-case and worst-case NPV figures. Do you think Lululemon should take on this project? Why or why not?

Answer rating: 100% (QA)

To calculate the NPV we need to calculate the cash flows for each year We will assume that the prices variable costs and fixed costs remain constant o... View the full answer