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:

image text in transcribed
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: 75,000 units per year Unit price: $140 Variable cost: $84 Fixed cost: $2,730,000 The project will last for 10 years and requires an initial investment of $4.48million, which will be depreclated straight-line 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. Sales could fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $130. The good news is that fixed costs could be as low as $1,820,000, and variable costs would decline in proportion to sales. a. What is project NPV if all variables are as expected? (Do not round intermediate calculations. Enter your answer in thousands not In millions and round your answer to the nearest whole dollar amount.) b. What is NPV in the worst-case scenario? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount. Negative amount should be indicated with a minus sign.)

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 Of Financial Institutions

Authors: George H Hempel

1st Edition

0133159604, 9780133159608

More Books

Students also viewed these Finance questions

Question

What is a millage rate? How is it determined?

Answered: 1 week ago