Question

	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

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