Consider a project to supply Thunder Bay with 35,000 tons of machine screws annually for automobile production. You will need an initial $5,200,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $985,000 and that variable costs should be $185 per ton; the CCA rate for threading equipment is 20 percent. It also estimates a salvage value of $500,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $280 per ton. The engineering department estimates you will need an initial networking capital investment of $410,000. You require a 13 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? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) NPV a-3 Should you pursue this project? Yes 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 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 answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Worst-case Best-case Consider a project to supply Thunder Bay with 35,000 tons of machine screws annually for automobile production. You will need an initial $5,200,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $985,000 and that variable costs should be $185 per ton; the CCA rate for threading equipment is 20 percent. It also estimates a salvage value of $500,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $280 per ton. The engineering department estimates you will need an initial networking capital investment of $410,000. You require a 13 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? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) NPV a-3 Should you pursue this project? Yes 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 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 answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Worst-case Best-case
