7. Scenario Analysis. The most likely outcomes for a particular project are estimated as follows: Unit price:

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7. Scenario Analysis. The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: $50 $30 $300,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 35% and the required rate of return is 12%. What is project NPV in the "best-case scenario," that is, assum- ing all variables take on the best possible value? What about the worst-case scenario? (LO2)

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Fundamentals Of Corporate Finance

ISBN: 9780073382302

6th Edition

Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus

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