Question
You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the
You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the project started, you will need an initial $1,500,000 investment in threading equipment. The project will last for five years. The accounting department estimates that annual fixed costs will be $300,000 and that variable costs should be $200 per tonne. The CCA rate for treading equipment is 20%. Accounting estimates a salvage value of $500,000 after costs of dismantling. The marketing department estimates that the auto makers will accept the contract at a selling price of $230 per tonne. The engineering department estimates you will need an initial net working capital investment of $450,000. You require a 13% return and face a marginal tax rate of 38% on this project.
Suppose you believe that the accounting departments initial cost and salvage projections are accurate only to within 15%; the marketing departments price estimate is accurate only to within 10%; and the engineering departments net working capital estimate is accurate only to within 5%. What is your worst-case scenario for this project? Your best-case scenario?
PLEASE DO NOT USE EXCEL I can do it in excel already thank you.
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