Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a project to supply Detroit with 2 7 , 0 0 0 tons of machine screws annually for automobile production. You will need an

Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,300,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,275,000 and that variable costs should be $240 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $650,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $350 per ton. The engineering department estimates you will need an initial net working capital investment of $510,000. You require a return of 14 percent and face a tax rate of 25 percent on this project.
a-1.
What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g.,32.)
a-2. What is the estimated NPV for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)
b. Suppose you believe that the accounting departments initial cost and salvage value projections are accurate only to within \pm 5 percent; the marketing departments price estimate is accurate only to within \pm 15 percent; and the engineering departments net working capital estimate is accurate only to within \pm 10 percent. What are your worst-case and best-case NPVs for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Core Concepts

Authors: Ray Brooks, Raymond Brooks

1st Edition

0321155173, 9780321155177

More Books

Students also viewed these Finance questions

Question

What appraisal intervals are often used in appraisal reviews?

Answered: 1 week ago

Question

What are the various alternatives?

Answered: 1 week ago