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Consider a project to supply Thunder Bay with 45,000 tons of machine screws annually for automobile production. You will need an initial $5,200,000 investment in
Consider a project to supply Thunder Bay with 45,000 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 $850,000 and that variable costs should be $190 per ton. Assume that depreciation is straight line to zero over the life of the project. The marketing department estimates a selling price of $350 per ton. Assume that there is no net working capital required. You require a 13% return and face a marginal tax rate of 35% on this project. a) What is the estimated OCF for this project? What is the estimated NPV for this project? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Should you pursue this project? b) Suppose you believe that the accounting department's projections given for price, quantity, variable costs, and fixed costs are all accurate to within +15%. 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. Do you still want to pursue the project
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