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Carry out all analyses in an Excel file Clearly label the base-case, worst-case, and best-case scenarios. 1. Consider your firm's project to supply Honda -
Carry out all analyses in an Excel file Clearly label the base-case, worst-case, and best-case scenarios. 1. Consider your firm's project to supply Honda - Auckland with 20,000 tons of machine screws annually for automobile production. The project will last for five years. The accounting department estimates you will need an initial $3.1 million investment in threading equipment to get the project started; annual fixed costs will be $925,000, and that variable costs should be $185 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $400,000 after dismantling costs. The marketing department estimates a selling price of $295 per ton. The engineering department estimates you will need an initial net working capital investment of $380,000. Your require a return of 13 percent and face a tax rate of 22 percent on this project. a) What is the estimated OCF for this project? The NPV? Should you pursue this project? (16 marks)
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