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Consider a project to supply Detrolt with 27,000 tons of machine screws annually for automobile production. You will need an Initial $4,700,000 Investment in threading

image text in transcribed Consider a project to supply Detrolt with 27,000 tons of machine screws annually for automobile production. You will need an Initial \$4,700,000 Investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,125,000 and that varlable costs should be \$210 per ton; accounting will depreclate the Initlal fixed asset Investment stralght-line to zero over the 5-year project life. It also estimates a salvage value of $500,000 after dismantling costs. The marketing department estlmates that the automakers will let the contract at a selling price of \$314 per ton. The engineering department estimates you will need an Inltial net working capital Investment of $450,000. You require a return of 13 percent and face a tax rate of 24 percent on this project. a-1. What is the estimated OCF for this project? (Do not round Intermedlate calculatlons and round your answer to the nearest whole number, e.g., 32.) a- What is the estimated NPV for this project? (Do not round Intermedlate calculations 2. and round your answer to 2 declmal places, e.g., 32.16.) b. Suppose you believe that the accounting department's Initlal cost and salvage value projections are accurate only to within \pm 5 percent, the marketing department's price estimate is accurate only to within \pm 15 percent; and the engineering department's net working capital estimate is accurate only to within \pm 10 percent. What are your worstcase and best-case NPVs for this project? (A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16.)

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