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. Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $2,800,000 investment in
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Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $2,800,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $750,000 and that variable costs should be $260 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $220,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $370 per ton. The engineering department estimates you will need an initial networking capital investment of $280,000. You require a return of 11 percent and face a marginal 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 enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 215 percent; the marketing department's price estimate is accurate only to within 10 percent; and the engineering department's net working capital estimate is accurate only to within 5 percent. What is the worst-case NPV for this project? The best-case NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)Step by Step Solution
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