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Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4.3 million Investment in
Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4.3 million 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 $1.025 million and that variable costs should be $190 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 $290 per ton. The engineering department estimates you will need an initial networking capital Investment of $410,000. You require a return of 13 percent and face a tax rate of 22 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 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 115 percent; the marketing department's price estimate is accurate only to within 110 percent; and the engineering department's net working capital estimate is accurate only to within 15 percent. What is your worst-case and best-case scenario 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. $ $ 1,729,700 1,765,627.18 a-1. OCF a-2. NPV b. Worst-case NPV Best-case NPV
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