Question
Firm XXX is evaluating a project that costs $900,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero
Firm XXX is evaluating a project that costs $900,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $60, variable cost per unit is $30, and fixed costs are $500,000 per year. The tax rate is 35 percent, and we require a 12 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 15 percent. What are the best-case NPV and the worst-case NPV respectively? (Please provide with a step by step solution. Thank you so much!)
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