Accounting department initial cost-salvage value projections

Assignment Help Financial Management

Reference no: EM131925239

Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,000,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $450 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $280,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $600 per ton. The engineering department estimates you will need an initial net working capital investment of $300,000. You require a return of 18 percent and face a marginal tax rate of 38 percent on this project.

a-1. What is the estimated OCF for this project? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

OCF $

a-2. What is the estimated NPV for this project? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

NPV $

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 ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What are your worst-case and best-case NPVs for this project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

Worst-case $

Best-case $

Reference no: EM131925239

Questions Cloud

What is the expected return for middlefield motors stock : If the market premium is 11.38 percent, the risk-free rate is 4.19 percent, the inflation rate is 2.67 percent, and Middlefield Motors common stock has a beta.

Sensitivity of npv to changes in quantity supplied : What is the sensitivity of the project OCF to changes in the quantity supplied? What is the sensitivity of NPV to changes in quantity supplied?

Compute the implied ppp exchange rate : For each country, compute the implied PPP exchange rate, the dollar price of the local BigMac and quantify the resulting under/over valuation of the currency.

How long will it take to accumulate : I now have $24,000 in the bank earning interest of .75% per month. I need $34,000 to make a down payment on a house. I can save an additional $100 per month.

Accounting department initial cost-salvage value projections : Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15%

Determine the amount she should deposit the first year : A 25-year old engineer is opening an individual retirement account (RRSP) at a bank. Her goal is to accumulate $1 million in the account by the time.

By how much did the nominal value change over the year : By how much did the nominal value of the Swiss franc change over the year? Does your answer confirm or disprove the prediction of economic theory?

Maximum amount pierre should be willing to pay for bond : If the current market rate is 8.96 percent, what is the maximum amount Pierre should be willing to pay for this bond?

What are best-case and worst-case NPVs : Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs?

User Account

All Pages