Question
Hey guys, I've been working on this question for my quiz, can't figure it out though. Would appreciate any help! Consider a project to supply
Hey guys, I've been working on this question for my quiz, can't figure it out though. Would appreciate any help!
Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,400,000 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 $800,000 and that variable costs should be $200 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $440,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $300 per ton. The engineering department estimates you will need an initial net working capital investment of $240,000. You require a 16 percent return and face a marginal tax rate of 38 percent on this project.
I calculated OCF as $1236400 which is correct
I calculated NPV as 1602209.89 but this isnt the right answer.
Suppose you believe that the accounting departments initial cost and salvage value projections are accurate only to within 15 percent; the marketing departments price estimate is accurate only to within 10 percent; and the engineering departments net working capital estimate is accurate only to within 5 percent. What is your worst-case and best-case scenario for this project?
For this question I have to calculate NPV for the best and worst case scenarios
I calculated NPV for worse case as -208979.54 which is incorrect Best case 3413399.33 which is incorrect
I'd appreciate any help!
Clarification, I'm looking for help with the NPV's for the first part and the worst and best case scenarios.
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