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What is project npv in the worst-case scenario

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Reference no: EM132657471

The most likely outcomes for a particular project are estimated as follows:

Unit price: $50

Variable cost: $30

Fixed cost: $430,000

Expected sales: 42,000 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 $1.9 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 21% 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?

b. What is project NPV in the worst-case scenario?

Reference no: EM132657471

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