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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 $3,100,000 investment in threading
Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,100,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that 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 that the automakers will let the contract at a selling price of $295 per ton. The engineering department estimates you will need an initial net working capital investment of $380,000. You require a return of 13 percent and face a tax rate of 22 percent on this project. b. 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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations round your answer to 2 decimal places, e.g., 32.16.) . Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 15 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 round your answers to 2 decimal places, e.g., 32.16.) a-1. OCF a-2. NPV b. Worst-case NPV b. Best-case NPV
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