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Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,400,000 investment in threading

image text in transcribedConsider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,400,000 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 $800,000 and that variable costs should be $200 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 $440,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $300 per ton. The engineering department estimates you will need an initial net working capital investment of $240,000. You require a 16 percent return and face a marginal tax rate of 38 percent on this project.

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