# Voodoo Love Case

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Voodoo Love Case
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 firm. The IRR of 13.8% is also higher than the estimated cost of funds of 12% that can be invested in capital markets implying that the rate of return for this project is higher than the required rate of financing. Table 1 and Chart 1 summarise the present cash flow present values and the relationship between the NPV and the applied discount rates.

Table 1: Net Present Value & IRR
(\$) Total cash flow present values Cumulative present values NPV IRR 0 1 371,429 2 \$ 606,665 \$ -1,521,907 3 \$ 541,665 \$ -980,242 4 \$ 483,629 \$ -496,613 5 \$ \$ 627,574 130,961 \$ -2,500,000 \$ \$ 130,961 13.8%

\$ -2,500,000 \$ -2,128,571

Chart 1: Net Present Value vs discount rate applied
\$1,400,000 \$1,200,000 \$1,000,000 Net Present Value (\$) \$800,000 \$600,000 \$400,000 \$200,000 \$0 -\$200,000 -\$400,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% IRR = 13.8%

Discount rate (%)

01

Assumptions
We have made the following assumptions in deriving the NPV and IRR for the “Voodoo Love” project: Revenue and costs 1. 2. 3. 4. 1 ounce of flacon is considered as 1 unit of fragrance Assume BFP will cease sales and production of “Voodoo Love” by the end of Year 5 Preliminary product design and marketing studies (\$50,000) is considered as a

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