Reference no: EM132602127
As a financial analyst, you must evaluate a proposed project to produce pen drives. The equipment would cost $60,000, plus $10,000 for installation. Annual sales would be 12,000 units at a price of $24 per drive, and the project's life would be 3 years. Current assets would increase by $10,000 and payables by $5,000. At the end of 3 years, the equipment could be sold for $15,000. Depreciation would be based on the MACRS 3-year class, so the applicable rates would be 33%, 45%, 15%, and 7%. Fixed costs excluding depreciation would be $50,000 per year; the marginal tax rate is 40%; and the corporate WACC is 12%.
The CFO asks you to scenario analysis using these inputs:
Probability Unit Sales VC (%)
Best Case 20% 14,000 60%
Base Case 60% 12,000 70%
Worst Case 20% 10,000 80%
Question 1: Other variables are unchanged. What are the expected NPV, the standard deviation, and the coefficient of variation?
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