Question
A firm has an opportunity to invest in a project that will have an initial cost of $800,000. The project will last for 8 years,
A firm has an opportunity to invest in a project that will have an initial cost of $800,000. The project will last for 8 years, and depreciation on the project's assets will be on a straight-line basis to zero. The firm's tax rate is 40%, and its required return on this type of project is 10%. The firm has also estimated the unit sales, price per unit, variable costs per unit, and fixed costs associated with the project (as seen in table below). What is the NPV of the project if the lowest unit sales occur, assuming that everything else stay at their base levels? Round your answer to the nearest dollar.
Base Level | Lower Bound | Upper Bound | |
Unit sales | 60,000 | 50,000 | 70,000 |
Price per unit | $7 | $6 | $8 |
Variable costs | $3.50 | $3 | $4 |
per unit Fixed costs | $20,000 | $10,000 | $30,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started