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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 tons of machine screws annually for automobile production. You will need an initial $ investment in threading equipment to get the project started; the project will last for years. The accounting department estimates that annual fixed costs will be $ and that variable costs should be $ per ton; accounting will depreciate the initial fixed asset investment straightline to zero over the year project life. It also estimates a salvage value of $ after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $ per ton. The engineering department estimates you will need an initial net working capital investment of $ You require a return of percent and face a tax rate of percent on this project.
a What is the estimated OCF for this project? Do not round intermediate calculations and round your answer to the nearest whole number, eg
a What is the estimated NPV for this project? Do not round intermediate calculations
and round your answer to decimal places, eg
b Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within percent; the marketing department's price estimate is accurate only to within percent; and the engineering department's net working capital estimate is accurate only to within percent. What are your worstcase and bestcase NPVs for this project? A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to decimal places, eg
tablea OCFa NPVb Worstcase NPVb Bestcase NPV
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