The most likely outcome for a particular project are estimated as follow: Howeve

Question

The most likely outcome for a particular project are estimated as follow: 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 8 million, which will be depreciated straight-line over the project life to a final value of zero The firm's tax rate is 40% and the required rate of return is 10% What is project NPV in the best-case scenario, that is, assuring all variables take on the best possible value? (A negative amount should be indicated by a minus sign Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) What is project NPV in the worst case scenario? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount Assume all tax losses can be applied to other taxable gains each year.)

Explanation / Answer

Sales price in best case =66

variable cost in best case =44

Sales price in worts case =54

variable cost in worts case =36

Units sold 38000 38000 38000 38000 38000 38000 38000 38000 38000 38000 Sales price per unit 66 66 66 66 66 66 66 66 66 66 Sales 2508000 2508000 2508000 2508000 2508000 2508000 2508000 2508000 2508000 2508000 Variabe cost 1672000 1672000 1672000 1672000 1672000 1672000 1672000 1672000 1672000 1672000 Fixed cost 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 3,90,000 Deprecitaion 180000 180000 180000 180000 180000 180000 180000 180000 180000 180000 PBT 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 2,66,000 Tax 106400 106400 106400 106400 106400 106400 106400 106400 106400 106400 PAT 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 1,59,600 PAT +Dep -1800000 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 3,39,600 NPV 2,60,631.81

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