Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows: Expected sales:

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows:
Expected sales: 125,000 units per year
Unit price: $240
Varlable cost: $144
Fixed cost: $5,430,000
The project will last for 10 years and requires an Inltial Investment of $21.78 million, which will be depreclated straight-IIne over the
project life to a final value of zero. The firm's tax rate is 30%, and the required rate of return is 12%.
However, you recognize that some of these estimates are subject to error. In one scenarlo a sharp rise in the dollar could cause sales
to fall 30% below expectations for the life of the project and, If that happens, the unit price would probably be only $230. The good
news is that fixed costs could be as low as $3,620,000, and varlable costs would decline in proportion to sales.
a. What is project NPV if all varlables are as expected?
Note: Do not round Intermedlate calculations. Enter your answer In thousands not in millilons and round your answer to the
nearest whole dollar amount.
b. What is NPV In the bad-case scenarlo?
Note: Do not round Intermedlate calculations. Enter your answer In thousands not in millions and round your answer to the
nearest whole dollar amount. Negatlve amount should be indlcated with a minus sign.
image text in transcribed

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

Financial Management For Nonprofit Organizations Policies And Practices

Authors: Jo Ann Hankin, John Zietlow, Alan Seidner, Tim O'Brien

3rd Edition

1119382564, 9781119382560

More Books

Students also viewed these Finance questions