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Consider a project to supply Detroit with 31,000 tons of machine screws annually for automobile production. You will need an initial $1,333,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $279,000 and that variable costs should be $130 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $299,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $130 per ton. The engineering department estimates you will need an initial net working capital investment of $279,000. You require a 16 percent return and face a marginal tax rate of 36 percent on this project. a. The estimated OCF for this project is $ and the NPV is $. (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department's price estimate is accurate only to within ±11 percent; and the engineering department's net working capital estimate is accurate only to within ±7 percent. Your worst-case NPV for this project is $ and your best-case NPV is $. (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Financial Management, Finance

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