Assuming all variables take on best possible value

Assignment Help Financial Management

Reference no: EM131880115

The most likely outcomes for a particular project are estimated as follows: Unit price: $ 60 Variable cost: $ 40 Fixed cost: $ 390,000 Expected sales: 38,000 units per year. However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.8 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 40% and the required rate of return is 10%.

a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

b. What is project NPV in the worst-case scenario? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Reference no: EM131880115

Questions Cloud

Recommendation on the proper life-cycle risk coverage : You for a recommendation on the proper life-cycle risk coverage to be contracted for at this stage of his/her life.

Interest income will you have to declare on tax return : You hold the bond for the entire year. Assume semiannual compounding. How much interest income will you have to declare on your tax return?

Calculate the expected present value of benefit : An insurance company provides the following benefits to three different policyholders, calculate the expected present value of benefit (B).

Find the project discount rate and discounted payback period : Find the Project Discount Rate, Discounted Payback Period, Average Accounting Return, Profitability Index.

Assuming all variables take on best possible value : What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?

Four-year project to improve its production efficiency : CSM Machine Shop is considering a four-year project to improve its production efficiency. Calculate the NPV.

What is the horizon value of the tax shield at year two : What is the horizon value of the tax shield at year 2? What is the current value of the tax shield?

Seek funding at the lowest possible cost : Xavier Manufacturing and Zulu Products both seek funding at the lowest possible cost.

What rate of return would you have earned on your investment : Six years ago you bought a bond for $1,036. what rate of return would you have earned on your investment?

User Account

All Pages