Question
the most likely outcomes for a particular project are estimated as follows: unit price: 50 variable cost: 30 fixed cost: 400,000 expected sales: 39,000 units
the most likely outcomes for a particular project are estimated as follows: unit price: 50 variable cost: 30 fixed cost: 400,000 expected sales: 39,000 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 $1.5 million, which will be depreciated straight-lineover the project life to a final value of zero. the firms tax rate is 40% 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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