Calculate the NPV and the sensitivity NPV

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Evaluate a project that cots $744,000, has an eight year life, and has a salvage value of $35,000. Assume that depreciation is based on a 7-year MACRS over the life of the project.

MACRS for 7 years Yr - %

1 - 14.29%

2- 24.49%

3- 17.49%

4- 12.49%

5- 8.93%

6 - 8.92%

7- 8.93%

8- 4.46%

Sales are projected 65,000 units per year. Sale price per unit is $37, variable cost per unit is $21, and annual fixed costs are $725,000. The firm expects to invest $25,000 in working capital to begin the project. All working capital is to be recovered once the project is complete. The firm's tax rate is 35%, and has a cost of capital of 15.

Calculate the NPV and the sensitivity NPV to +/- 10% changes in the underlying assumptions. Set up a table tha depicts the NPV under pessimistic, Expects, and Optimistic circumstances.

Reference no: EM131880778

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