Problem $11-27$ Scenario Analysis $[$LO$2]$

Consider a project to supply Detroit with $28,000$ tons of machine screws annually for automobile production. You will need an initial $$5,100,000$ investment in threading equipment to get the project started; the project will last for $5$ years. The accounting department estimates that annual fixed costs will be $$1,225,000$ and that variable costs should be $$230$ per ton; accounting will depreciate the initial fixed asset investment straight$-$line to zero over the $5-$year project life. It also estimates a salvage value of $$600,000$ after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $$338$ per ton. The engineering department estimates you will need an initial net working capital investment of $$490,000.$ You require a return of $12$ percent and face a tax rate of $23$ 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$-2.$ What is the estimated NPV for this project? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ Suppose you believe that the accounting department$$s initial cost and salvage value projections are accurate only to within $\backslash$pm $10$ percent; the marketing department$$s price estimate is accurate only to within $\backslash$pm $5$ percent; and the engineering department$$s net working capital estimate is accurate only to within $\backslash$pm $15$ 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$.,32\mathrm{.}16.)$