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Calculate the project fcf and npv

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Reference no: EM132999187

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.

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%.

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

Reference no: EM132999187

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