Calculate the project fcf and npv

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Orange Pty Ltd is considering to invest in a new artificial inteligence product. Below is the estimates, plus or minus 80%, associated with this new project:

Unit price: $1,700
Variable costs per unit: $500
Fixed costs: $2,000,000 per year
Expected sales: 10,000,000 per year
Assume that this new product line will require an initial outlay of $2 million to be invested in non-depreciating assets, with no working capital investment. Tax rate is 30% in its project analyses.

Problem a) Calculate the project's FCF and NPV under each of the following sets of assumptions: (1) the best-case scenario, (2) the base case using expected values, and (3) the worst-case scenario for one year from now. Consider discount rate to be 40%.

Problem b) Explain your assessment of the investment's potential and risk. At least four key concepts to be included in your discussion.

Reference no: EM132976934

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