Question

The most likely outcomes for a particular project are estimated as follows: Unit price: $ 70...

The most likely outcomes for a particular project are estimated as follows:

Unit price: $ 70
Variable cost: $ 50
Fixed cost: $ 200,000
Expected sales: 35,000 units per year

However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.2 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 21% and the required rate of return is 12%.

(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?

b. What is project NPV in the worst-case scenario?

Homework Answers

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
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 50...
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 50 Variable cost: $ 30 Fixed cost: $ 410,000 Expected sales: 40,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.4 million, which will be depreciated...
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 60...
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 60 Variable cost: $ 40 Fixed cost: $ 420,000 Expected sales: 47,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.1 million, which will be depreciated...
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 80...
The most likely outcomes for a particular project are estimated as follows: Unit price: $ 80 Variable cost: $ 60 Fixed cost: $ 280,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.0 million, which will be depreciated...
the mostly outcomes for a particular project are estimated as follows: Unit Price: $50 Variable Cost:...
the mostly outcomes for a particular project are estimated as follows: Unit Price: $50 Variable Cost: $30 Fixed Cost: $490000 Expected sales: 48000 units per year however, you recognize that some of the estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. the project will last for 10 years and require an initial investment of $2.3 million, which will be depreciated straight line over the...
Unit Price: $60, Variable Cost: $40, Fixed-Cost $420,000, Expected Sales: 47,000 Units per year However, you...
Unit Price: $60, Variable Cost: $40, Fixed-Cost $420,000, Expected Sales: 47,000 Units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is...
We are evaluating a project that costs $732,000, has a six-year life, and has no salvage...
We are evaluating a project that costs $732,000, 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 55,000 units per year. Price per unit is $60, variable cost per unit is $30, and fixed costs are $640,000 per year. The tax rate is 35 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 $560,400, has a six-year life, and has no salvage...
We are evaluating a project that costs $560,400, 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 $38, variable cost per unit is $24, and fixed costs are $680,000 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,...
Whitewater Transmissions, Inc., has the following estimates for its new gear assembly project: price = $2,020...
Whitewater Transmissions, Inc., has the following estimates for its new gear assembly project: price = $2,020 per unit; variable costs = $800 per unit; fixed costs = $5.7 million; quantity = 111,000 units. Suppose the company believes all of its estimates are accurate only to within ±15%. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario? (Enter the answers in dollars, not millions of dollars,...
Whitewater Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,720...
Whitewater Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,720 per unit; variable costs = $500 per unit; fixed costs = $4.2 million; quantity = 96,000 units. Suppose the company believes all of its estimates are accurate only to within ±15%. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario? (Enter the answers in dollars, not millions of dollars,...
We are evaluating a project that costs $660,000, has a five-year life, and has no salvage...
We are evaluating a project that costs $660,000, 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 69,000 units per year. Price per unit is $58, variable cost per unit is $38, and fixed costs are $660,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...