Question: Please sow Excel formulas and steps so I can learn. Thank you Lululemon is considering investing in new machinery that will generate sustainably created athleisure
Please sow Excel formulas and steps so I can learn. Thank you
Lululemon is considering investing in new machinery that will generate sustainably created athleisure shirts and pants. The discount rate is 10%, and the initial investment that can produce either type of clothing in equipment $8 million. The machinery's economic life is 20 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: $70 Sales price per pant: $135 Variable Costs per shirt: $5.75 Variable Costs per pant: $10.25 Fixed Costs of production per Year (regardless of just pants/ just shirts/ or both): $160,000 Tax Rate=21%
Number of shirts sold per year: 50,100 Number of pants sold per year: 42,500
- What is the accounting break-even level for production of a) shirts, and b) pants (treat them separately)?
- What is the financial break-even level for production of a) shirts, and b) pants (treat them separately)?
- What is the base-cash cash flow of the total project (i.e., accounting for both shirts and pants)?
- What is the base-case NPV of this project?
- Assume that your projection for price of pants, fixed costs, and variable costs of shirts were only accurate within +/- 20%. Calculate the best-case and worst-case NPV figures for the total project. Do you think Lululemon should take on this project? Why or why not?
- What is the sensitivity of the NPV to changes in the fixed costs? Explain what your answer tells you about a $10,000 increase in projected fixed costs for pants.
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