Question
The most likely outcomes for a particular project are estimated as follows: Unit price: $50 Variable cost: $30 Fixed cost: $300,000 Expected sales: 30,000 units
The most likely outcomes for a particular project are estimated as follows:
Unit price: $50
Variable cost: $30
Fixed cost: $300,000
Expected sales: 30,000 units per year
However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firms tax rate is 21% and the required rate of return is 12%.
What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?
What is project NPV in the worst-case scenario?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
