Question
there is a 10% chance the economy will enter a recession during the coming year; a 50% chance of a stable economy, and a 40%
there is a 10% chance the economy will enter a recession during the coming year; a 50% chance of a stable economy, and a 40% chance of an economic boom. If there is a recession, units sold will decline by 15% for all years after the first year. If there is an economic boom, units sold will increase by 25% for all years after the first year. What is the overall expected NPV for this project?
Inputs: |
|
Equipment cost | 10,000,000.00 |
Salvage Value | 950,000.00 |
Units Sold (Year 1) | 124,000.00 |
Annual change in units sold (until last year when it declines by 30%) | 15% |
Sales Price (Year 1) | $35 |
Inflation Rate | 2% |
VC per unit (Year 1) | 13.50 |
FC per year (Year 1 | 2,250,000.00 |
WACC | 14.00% |
NWC (Percent of next yr's sales) | 24% |
Tax Rate | 21% |
Length of Project | 6 years |
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