Question
3. Consider a project with a 6-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated
3. Consider a project with a 6-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated to zero over the life of the project. You expect to sell the equipment for $240,000 after 6 years. The project requires an initial investment in net working capital of $120,000, which will be recouped at the end of the project.
You estimated sales of 57,000 units per year at a price of $167 each. The variable cost per unit is estimated to be $133.6 and fixed costs are $240,000 per year.
You expect unit sales, prices, variable and fixed costs to be within 15% of your estimates.
The required return is 12% and the tax rate is 34%.
You expect unit sales, prices, variable and fixed costs to be within 15% of your estimates.
The required return is 13% and the tax rate is 34%.
1)What is the NPV in the base case?
2) What is the NPV in the pessimistic case?
3)What is the NPV in the optimistic case?
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