Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Show work. Please no excel. thanks!!! 27. Scenario Analysis [LO2] Consider a project to supply Detroit with 30.000 tons of machine screws annually for automobile

Show work. Please no excel. thanks!!! image text in transcribed
27. Scenario Analysis [LO2] Consider a project to supply Detroit with 30.000 tons of machine screws annually for automobile production. You will need an initial $4.3 million 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 $1.025 million and that variable costs should be $190 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 $400,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $290 per ton. The engineering department estimates you will need an initial net working capital investment of $410.000. You require a return of 13 percent and face a tax rate of 22 percent on this project. a. What is the estimated OCF for this project? The NPV? Should you pursue this project? b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 15 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 is your worst-case scenario for this project? Your best-case scenario? Do you still want to pursue the project

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: 3

blur-text-image

Ace Your Homework with AI

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

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: Gary E. Gibbons, Robert D. Hisrich, Carlos Marques DaSilva

1st Edition

1452274177, 978-1452274171

More Books

Students also viewed these Finance questions