We are evaluating a project that costs $2,100,000, has a 7-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 98,600 units per year. Price per unit is $37.79, variable cost per unit is $23.90, and fixed costs are $857,000 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, variable costs, and fixed costs are all accurate to within 10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
We are evaluating a project that costs $2,100,000, has a 7-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 98,600 units per year. Price per unit is $37.79, variable cost per unit is $23.90, and fixed costs are $857,000 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, variable costs, and fixed costs are all accurate to within 10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...
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![We are evaluating a project that costs $2,100,000, has a 7-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 98,600 units per year. Price per unit is $37.79, variable cost per unit is
$23.90, and fixed costs are $857,000 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, variable costs, and fixed costs are all
accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
Best-case NPV
Worst-case NP](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33841605-38ff-424b-bcd2-5331ed729965%2F609eebff-cf66-41dc-bac5-0adea893d4f8%2F920svfn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:We are evaluating a project that costs $2,100,000, has a 7-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 98,600 units per year. Price per unit is $37.79, variable cost per unit is
$23.90, and fixed costs are $857,000 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, variable costs, and fixed costs are all
accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
Best-case NPV
Worst-case NP
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