Question

conduct scenario analysis illustrated below:

Suppose you have been hired as a financial consultant to Cape Cod Fishing, Inc. (CCF), a large firm that is the market share leader in manufacturing fishing products. The company is looking at setting up a manufacturing plant to produce a new line of fishing bait, which specially formulated for attracting bluefin tuna. To illustrate, suppose the company can sell 87,300 cans of bait per year at a price of $39.18 per can. It costs the company about $23.40 per can to make fishing bait, and a new product such as this one typically has only a 6-year life (perhaps because the customer base dwindles rapidly). We require a 9 percent return on new products. Fixed costs for the project, including such things as rent on the production facility, will run $827,000 per year. The tax rate is 24 percent. Suppose the projections are given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the most likely case, best-case, and worst-case net present value (NPV) figures.

All necessary information is provided to solve the problem.

Please show your work.

Answer 1