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Ironlove Inc. considers a project to supply a car manufacturer with 130,000 tons of steel plates annually for five years. It requires an initial investment
Ironlove Inc. considers a project to supply a car manufacturer with 130,000 tons of steel plates annually for five years. It requires an initial investment of 60 million dollars in steel plate production machinery. The variable cost of the production is $450 per ton. The overhead cost will be 15 million dollars a year, and the company estimates the price of the steel plates at $1000 per ton. To run this project, Ironlove needs to invest 10 million dollars in the net working capital at time zero. The machinery belongs to Class 6, with a CCA rate of 20%. The company estimates that it can sell the machinery at a salvage value equal to one-fourth of the original cost (which is equal to 15 million dollars). Assume the company requires a 12% rate of return, and the tax rate is 35%. a) b) What are the estimated OCF and NPV for this project? Should you pursue this project? Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within +10%; the marketing departments steel price estimate is accurate only within +10%, and the net working capital estimate is accurate only to within +15%. What is your worst-case and best-case scenario for this project
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