Question

A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and...

A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and has no salvage value. Assume depreciation is straight-line to zero over the life of the project. Sales are projected at 31,000 units per year, the price per unit is $47, variable cost per unit is $23, and fixed costs are $842,900 per year. The tax rate is 23 percent and the required return is 11.5 percent. Suppose the projections given for price and quantity can vary by ±4 percent while variable and fixed cost estimates are accurate to within ±2 percent. What is the best-case NPV?

Homework Answers

Answer #1
Best Case:
Sales qty = 31000+4% = 32240
Selling price = 47+4% = 48.88
Variable cost = 23-2% = 22.54
Fixed cost = 842900-2% = 826042
CM per unit = Sselling price - VC per unit = 48.88-22.54 = 26.34
Annual Operating cashflows:
Sales units 32240
CM per unit 26.34
Total Contribution 849201.6
Less: Fixed cost 826042
Less: Depreciation (227000/4) 56750
Net income before tax -33590.4
Less: Tax @ 23% 7725.8
After tax Income -25864.6
Add: Depreciation 56750
Annual Operating cashflows: 30885.4
Annuity PVF at 11.505 for 4 yrs 3.069614
Present value of inflows 94806.26
Less: Initial investment -227000
Net present value -132194
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
We are evaluating a project that costs $106869, has a seven-year life, and has no salvage...
We are evaluating a project that costs $106869, has a seven-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 4092 units per year. Price per unit is $55, variable cost per unit is $29, and fixed costs are $82782 per year. The tax rate is 38 percent, and we require a 9 percent return on this project. Suppose the projections given for price, quantity, variable...
We are evaluating a project that costs $786,000, has an eight-year life, and has no salvage...
We are evaluating a project that costs $786,000, has an eight-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 65,000 units per year. Price per unit is $48, variable cost per unit is $25, and fixed costs are $725,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $744,000, has a six-year life, and has no salvage...
We are evaluating a project that costs $744,000, 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 45,000 units per year. Price per unit is $60, variable cost per unit is $20, and fixed costs are $740,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $908,000, has a four-year life, and has no salvage...
We are evaluating a project that costs $908,000, has a four-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 87,200 units per year. Price per unit is $34.35, variable cost per unit is $20.60, and fixed costs are $752,000 per year. The tax rate is 30 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $569,100, has a six-year life, and has no salvage...
We are evaluating a project that costs $569,100, 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 85,000 units per year. Price per unit is $40, variable cost per unit is $26, and fixed costs are $690,000 per year. The tax rate is 24 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $683988, has a five-year life, and has no salvage...
We are evaluating a project that costs $683988, has a five-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 42400 units per year. Price per unit is $50, variable cost per unit is $22, and fixed costs are $524439 per year. The tax rate is 30%, and we require a return of 18% on this project. Suppose the projections given for price, quantity, variable costs,...
We are evaluating a project that costs $800,000, has a life of 8 years, and has...
We are evaluating a project that costs $800,000, has a life of 8 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 60,000 units per year. Price per unit is $40, variable cost per unit is $20, and fixed costs are $800,000 per year. The tax rate is 21 percent and we require a return of 11 percent on this project. Suppose the projections given for...
We are evaluating a project that costs $500,000, has a life of 8 years, and has...
We are evaluating a project that costs $500,000, has a life of 8 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 22 percent and we require a return of 12 percent on this project. Suppose the projections given for...
We are evaluating a project that costs $987,000, has an fourteen-year life, and has no salvage...
We are evaluating a project that costs $987,000, has an fourteen-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 138,000 units per year. Price per unit is $38, variable cost per unit is $28, and fixed costs are $1,005,753 per year. The tax rate is 33 percent, and we require a 12 percent return on this project. The projections given for price, quantity, variable costs,...
We are evaluating a project that costs $571,800, has a six-year life, and has no salvage...
We are evaluating a project that costs $571,800, 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 80,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $685,000 per year. The tax rate is 23 percent, and we require a return of 11 percent on this project. Suppose the projections given for price, quantity,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT