Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,700,000 investment in threading

image text in transcribed

Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,700,000 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 $1,375,000 and that variable costs should be $260 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 $750,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $374 per ton. The engineering department estimates you need an initial net working capital investment of $550,000. You require a return of 13 percent and face a tax rate of 24 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- What is the estimated NPV for this project? (Do not round intermediate calculations 2. and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within t10 percent, the marketing department's price estimate is accurate only to within 5 percent, and the engineering department's net working capital estimate is accurate only to within +15 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

Students also viewed these Finance questions

Question

1. Describe the power of nonverbal communication

Answered: 1 week ago