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Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $1,440,000 investment in threading equipment to get the project started; the project will last for 7 years. The accounting department estimates that annual fixed costs will be $440,000 and that variable costs should be $180 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 7-year project life. It also estimates a salvage value of $471,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $200 per ton. The engineering department estimates you will need an initial net working capital investment of $352,000. You require a 10 percent return and face a marginal tax rate of 34 percent on this project.

A. The estimated OCF for this project is?? Please round 2 decimal places.

B. The NPV is?? Please round 2 decimal places

C. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within ±14 percent; the marketing department's price estimate is accurate only to within ±9 percent; and the engineering department's net working capital estimate is accurate only to within ±3 percent.

Your worst-case NPV for this project is? Please round 2 decimal places

Best-case NPV for this prject? Please round 2 decimal places

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91602698

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