Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nathan Caldwell Welding Company has decided to sell an improved design of gate posts. The posts will sell for $790 per set and have a

Nathan Caldwell Welding Company has decided to sell an improved design of gate posts. The posts will sell for $790 per set and have a variable cost of $390 per set. The company has spent $149,000 for a marketing study that determined the company will sell 53,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,400 sets of its high-priced posts. The high-priced posts sell at $1,090 and have variable costs of $690. The company will also increase sales of its cheap posts by 10,900 sets. The cheap posts sell for $430 and have variable costs of $225 per set. The fixed costs each year will be $9,090,000. The company has also spent $1,100,000 on research and development for the new posts. The plant and equipment required will cost $28,630,000 and will be depreciated on a straight-line basis. The new posts will also require an increase in net working capital of $1,290,000 that will be returned at the end of the project. The tax rate is 34 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only 10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of posts are known with certainty; only the sales gained or lost are uncertain.) (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.) d. Calculate the Best Case NPV. Best Case NPV = $ e. Calculate the Worst Case NPV. Worst Case NPV = $

**** Pay close attention to the statement (Hint: The price and variable costs for the two existing sets of posts are known with certainty; only the sales gained or lost are uncertain.)****

*****Please provide explanation as to what variables are changed from base case and worst/best case scenarios. The values I have came up with match the best case of examples already solved on this platform, however the worst and best case scenarios differ due to the change in variables. I interpret the question as there is only a 10% change in the Qty sold, and there is no change to price. Please solve in excel

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_step_2

Step: 3

blur-text-image_step3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions

Question

Describe the team dynamics at Facebook.

Answered: 1 week ago