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Voodoo Love Case

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Executive Summary
The “Voodoo Love” project is the potential commercialization of a new fragrance by Bourbon French Parfums CEO Mary Behlar to U.S outlets over the next five years. This report determines the economic feasibility of “Voodoo Love” based on the net present value (NPV) of its cash flows and the internal rate of return (IRR) over the 5 year period. We have made certain assumptions to calculate the final numbers which are outlined below. The “Appendix” contains the detailed calculations. Based on our calculations the project is economically feasible. The NPV of the project is $130,961. A positive NPV implies that the present values of the cash outflows outweigh the present values of the cash inflows thereby adding value to the …show more content…

,000 30,000 0 $ $ $ $ 0 $ 2,500,000 $ 2,500,000 $ $ $ $ $ $ $ 500,000 30,000 405,000 90,000 345,000 345,000 1 435,000 174,000 261,000 500,000 $ $ $ $ $45 10 $12,000 $3,000 $3,000 5 $5,000 $2,500,000 $0 $85,000 5 0 $ 1 45 $ 36,000 $ 1,620,000 $ $ $ $ $ $ $ 10 360,000 144,000 36,000 60,000 85,000 610,000 1 $ $ $ $ $ $ $ 500,000 30,000 405,000 90,000 345,000 2 435,000 174,000 261,000 500,000 $ $ $ $ $ 2,000,000 Opportunity cost of capital (%) Corporate income tax rate (%) 2 45 36,000 $ 1,620,000 $ $ $ $ $ $ $ 10 360,000 144,000 36,000 60,000 85,000 610,000 2 $ $ $ $ $ $ $ 500,000 30,000 405,000 90,000 345,000 3 435,000 174,000 261,000 500,000 $ $ $ $ $ 1,500,000 $ 3 45 36,000 $ 1,620,000 $ $ $ $ $ $ $ 10 360,000 144,000 36,000 60,000 85,000 610,000 3 $ $ $ $ $ $ $ $ 500,000 500,000 30,000 405,000 90,000 345,000 4 435,000 174,000 261,000 500,000 $ $ $ $ $ 1,000,000 $ 4 45 36,000 $ 1,620,000 $ $ $ $ $ $ $ 10 360,000 144,000 36,000 60,000 85,000 610,000 4 $ $ $ $ $ $ $ $ 500,000 405,000 60,000 315,000 5 435,000 174,000 261,000 500,000 $ 12% 40% 5 45 36,000 $ 1,620,000 $ $ $ $ $ $ $ 10 360,000 144,000 36,000 60,000 85,000 610,000 5 Collection period (months) Payment period (months) 3 3 Production capacity (monthly) Equipment life (years) Inventory raw materials (monthly) 3,000 5 $30,000

$ 1,106,000

03

Appendix 1: Voodoo Love – NPV analysis (cont)

Net Present Value 38 39 40 41 42 Discount factor Total cash flow present values Cumulative present values NPV IRR

0

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