Consider a project to supply Detroit with 25,000 tons of machine screws annually
ID: 2703765 • Letter: C
Question
Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,200,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $400 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $480 per ton. The engineering department estimates you will need an initial net working capital investment of $220,000. You require a 15 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
Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,200,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $400 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $480 per ton. The engineering department estimates you will need an initial net working capital investment of $220,000. You require a 15 percent return and face a marginal tax rate of 38 percent on this project.
Explanation / Answer
a-1
What is the estimated OCF for this project?
OCF
$973,200
a-2
What is the estimated NPV for this project? (Round your answer to 2 decimal places. (e.g., 32.16))
NPV
$1,044,171.10
b.
Suppose you believe that the accounting department
a-1
What is the estimated OCF for this project?
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