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Problem:

We are evaluating a project that costs $972,000, has a four-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 88,800 units per year. Price per unit is $35.15, variable cost per unit is $21.40, and fixed costs are $768,000 per year. The tax rate is 35 percent, and we require a return of 13 percent on this project.

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Question: Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172926

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