Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4,400,000 investment in threading equipment to get the project started; the project will last for three years. The accounting department estimates that annual fixed costs will be $650,000 and that variable costs should be $250 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the three-year project life. It also estimates a salvage value of $260,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $390 per ton. The engineering department estimates you will need an initial net working capital investment of $440,000. You require a return of 18 percent and face a marginal tax rate of 30 percent on this project.

a-1 What is the estimated OCF for this project? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

OCF $ 2,925,000

a-2 What is the estimated NPV for this project? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

NPV $ 1,898,317

b. Suppose you believe that the accounting departments initial cost and salvage value projections are accurate only to within 15 percent; the marketing departments price estimate is accurate only to within 10 percent; and the engineering departments net working capital estimate is accurate only to within 5 percent. What are your worst-case and best-case NPVs for this project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

Worst-case $ ____________

Best-case $______________