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Your firm managed to get a government contract to supply the City of Atlanta with 26,000 tons of steel annually for infrastructure development. You have
Your firm managed to get a government contract to supply the City of Atlanta with 26,000 tons of steel annually for infrastructure development. You have estimated that your firm will need an initial $4,500,000 investment in the new machinery to get started; the project will last for five years. The annual fixed costs will be $515,000, and that variable costs should be $295 per ton; accounting will depreciate the initial asset investment straight-line to zero over the 5 year project life. At the end of five years, the equipment will be dismantled, and the estimated selling price of the equipment is $275,000 after dismantling costs. The City of Atlanta will pay your firm a selling price of $385 per ton. The project will increase the firm's working capital needs by $400,000, recovered when the project is terminated. Your firm's capital cost is 15%, and the marginal tax rate is 12%. 10. Suppose you believe that the projections for the selling price, and the fixed and variable costs are accurate only to within +14%, what is the NPV in the worst-case scenario for this project? a. $2,189,899.01 b. $2,170,694.86 c. $982,153.36 d. $1,077,885.59 e. None of the above
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