Question
Hello, I am having difficulty solving the following: The most likely outcomes for a particular project are estimated as follows: Unit price:$50 Variable cost:$30 Fixed
Hello, I am having difficulty solving the following:
The most likely outcomes for a particular project are estimated as follows:
Unit price:$50
Variable cost:$30
Fixed cost:$320,000
Expected sales:31,000 units per year
However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.5 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 35% and the required rate of return is 12%.
a.What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?(A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answerto the nearest dollar amount.)
b.What is project NPV inthe worst-case scenario?(A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answerto the nearest dollar amount.)
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