We are evaluating a project that costs $1,675,000, has a six-year life, and has
ID: 2633463 • Letter: W
Question
We are evaluating a project that costs $1,675,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.
Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.
Best-Case?
Worst-Case?
Explanation / Answer
Particulars 1 2 3 4 5 6 Sales=35.95*91000(A) 3271450 3271450 3271450 3271450 3271450 3271450 Variable Cost=21.40*91000(B) 1947400 1947400 1947400 1947400 1947400 1947400 Fixed Cost
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