Question
Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading
Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 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 $850,000 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 $460,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $330 per ton. The engineering department estimates you will need an initial net working capital investment of $480,000. You require a return of 10 percent and face a marginal tax rate of 38 percent on this project.
Please show work. I'm trying to get it :)
a-1 What is the estimated OCF for this project? (Do not round intermediate calculations.) OCF 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 b. 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 (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-caseStep by Step Solution
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