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 $800,000 and that variable costs should be $350 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 $280,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $450 per ton. The engineering department estimates you will need an initial net working capital investment of $520,000. You require a return of 16 percent and face a marginal tax rate of 30 percent on this project. a. Suppose you're confident about your own projections, but you're a little unsure about Detroit's actual machine screw requirement. What is the sensitivity of the project OCF to changes in the quantity supplied? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) 70 b. What is the sensitivity of NPV to changes in quantity supplied? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) $ 257.93 c. Given the sensitivity number you calculated, what is the minimum level of output below which you wouldn't want to operate? (Do not round intermediate calculations and round your final answer to the nearest whole number, e.g., 32) Minimum level of output

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

Fundamentals Of Futures And Options Markets

Authors: John Hull

9th Edition

0134083245, 9780134083247

More Books

Students also viewed these Finance questions

Question

How should Disney manage their global diversity?

Answered: 1 week ago