Consider a project to supply 35,000 tons of machine screws annually for automobile production. You will need an initial investment of $5,300,000 in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed cost will be $985,000 and the variable costs should be $185 per ton; the CCA for threading equipment 20%. It also estimates a salvage value of $500,000 after dismantling costs. The marketing department estimates a selling price of $285 per ton. The engineering department estimates that you will require a net working capital investment of $410,000 which will be recovered at the end of the project. You require a 13% return and face a marginal tax rate of 38 percent on this project. Assume that the asset class remains open.

a) What is the estimated OCF of this project? The NPV? Should you pursue the project? (20 marks)

b) Suppose you believe that the accounting departments initial cost and salvage value projections are accurate only to within 15%; the marketing departments selling price estimate is accurate only within 10% and the engineering departments net working capital estimate is accurate only to within 5%. What are the worst- and best-case scenarios of this project? Do you still want to pursue the project? (20 marks)

c) Calculate the IRR of the project for the base case scenario using solver and goal seek. (5 marks)

[Note: You are expected to use excel worksheet for solving this problem. Create table for CCA calculation to incorporate in the OCF calculation table. Then find the NPV of the project taking the difference of the salvage and UUC at the end of the project into account. Take advantage of changing data for worst and best case in excel worksheet. You may submit your excel file for this assignment. 5% of the marks will be awarded based on your presentation of the solution (how easy it is to read and extract information from your work).]