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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?

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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
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