Reference no: EM132810000

Consider a project to supply a NY with 35000 tons of machine screws annually for automobile production, you will need an initial 1500,000 investment in threading equipment to get the project started, the project will last for five years. The accounting department estimates that annual fixed cost will be 300,000 and that variable cost should be 200 per ton, accounting will depreciate the initial fixed assets investment straight line to zero over the five year project life, it also estimates a salvage value of 500,000 after dismantling costs. The marketing department estimates that the auto makers will let the contract at a selling price of 230 per ton. The engineering department estimates you will need an initial net working capital investment of 450,000, you require a 13 percent return and face a marginal tax rate of 38% on the project.

Problem 1: What is the estimated OCF for this project? The NPV? Should you pursue this project?