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You can invest $5M in a new plant for making widgets. The plant has an...

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You can invest $5M in a new plant for making widgets. The plant has an expected life of $5M and you expect to sell 6 million widgets. Fixed costs are $2M a year and variable costs $1 per widget. Widgets sell for $2. Depreciation is straight line and salvage value is zero. Cost of capital is 10% and tax rate 40%. a) What is the project NPV under the base case assumptions? b) What is the NPV if the variable cost is $1.20 per widget? c) What is the NPV if fixed costs turn out to be $1.5M per year? d) At what price do we break even

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