Consider a project to supply Detroit with 20,000 tons of machine screws annually

Question

Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,400,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $800,000 and that variable costs should be $180 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $620,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $300 per ton. The engineering department estimates you will need an initial net working capital investment of $340,000. You require a 11 percent return and face a marginal tax rate of 38 percent on this project.

What is the estimated OCF for this project?

What is the estimated NPV for this project? (Round your answer to 2 decimal places. (e.g., 32.16))

Suppose you believe that the accounting department

What is the estimated OCF for this project?

Explanation / Answer

OCF SALES $ 6,000,000.00 VC $ 3,600,000.00 FC $      800,000.00 DEPRE $      850,000.00 EBIT $      750,000.00 TAXES $      285,000.00 NI $      465,000.00 OCF $ 1,315,000.00

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