Question

Base Lower Upper Unit Sales 6,000 5,500 6,500 Price per unit 160 150 170 VC per...

Base

Lower

Upper

Unit Sales

6,000

5,500

6,500

Price per unit

160

150

170

VC per unit

120

116

124

FC

100,000

90,000

110,000

The Can-Do Co. is analyzing a proposed project. The company needs to purchase equipment with the initial cost of $400,000. The project has a 5-year life and equipment is straight-line depreciated to zero. At the end of the project, equipment is worth nothing. The required return is 12%, and the tax rate is 34%. Below are the possible values for unit sales, price per unit, variable cost (VC) per unit; and fixed cost. What is the NPV under the worst case scenario? PLEASE SHOW WORK

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Answer #1

Now,

NPV = Present value of cash inflows - Initial cash outflow

NPV = 91,220 * PVAF(12%,5y) - 400,000

NPV = 91,220 * 3.605 - 400,000

NPV =  328,827.69 - 400,000 = -71,172.31

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