Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $5,400,000 investment in threading

image text in transcribed

Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $5,400,000 investment in threading equipment to get the project started; the project will last for six years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $450 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the six-year project life. It also estimates a salvage value of $380,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $560 per ton. The engineering department estimates you will need an initial networking capital investment of $540,000. You require a 12 percent return and face a marginal tax rate of 38 percent on this project a-1 What is the estimated OCF for this project? OCF $ a-2 What is the estimated NPV for this project? (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 your worst- case and best-case scenario for this project? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Worst-case Best-case Ata

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

Recommended Textbook for

Financial Management For Nurse Managers Merging The Heart With The Dollar

Authors: J. Michael Leger

5th Edition

1284230937, 9781284230932

More Books

Students also viewed these Finance questions