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I need help with part b. I cannot figure out the Worst-Case NPV. Consider a project to supply Detroit with 28,000 tons of machine screws
I need help with part b. I cannot figure out the Worst-Case NPV.
Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,150,000 and that variable costs should be $215 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $525,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $320 per ton. The engineering department estimates you will need an initial networking capital investment of $460,000. You require a return of 14 percent and face a tax rate of 25 percent on this project a-1. What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a- What is the estimated NPV for this project? (Do not round intermediate calculations 2. and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 215 percent; the marketing department's price estimate is accurate only to within 10 percent; and the engineering department's net working capital estimate is accurate only to within +5 percent. What are your worst- case and best-case NPVs for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. OCF 1,582,500 a- NPV Worst-case NPV Best-case NPV 616,261.63 -2,753,588.86 3,561,430.86 $ Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,150,000 and that variable costs should be $215 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $525,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $320 per ton. The engineering department estimates you will need an initial networking capital investment of $460,000. You require a return of 14 percent and face a tax rate of 25 percent on this project a-1. What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a- What is the estimated NPV for this project? (Do not round intermediate calculations 2. and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 215 percent; the marketing department's price estimate is accurate only to within 10 percent; and the engineering department's net working capital estimate is accurate only to within +5 percent. What are your worst- case and best-case NPVs for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. OCF 1,582,500 a- NPV Worst-case NPV Best-case NPV 616,261.63 -2,753,588.86 3,561,430.86 $Step by Step Solution
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