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Consider a project to supply Detrolt with 26,000 tons of machine screws annually for automobile production. You will need an Initlal $5,900,000 Investment In threading equlpment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,425,000 and that varlable costs should be $270 per ton; accounting will depreclate the Initlal fixed asset Investment stralght-ine to zero over the 6-year project life. It also estimates a salvage value of $800,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $386 per ton. The engineering department estimates you will need an Initlal net working capltal Investment of $570,000. You require a return of 9 percent and face a tax rate of 21 percent on this project. a-1. What Is the estimated OCF for this project? (Do not round Intermedlate calculations and round your answer to the nearest whole number, e.g., 32.) a- What Is the estimated NPV for this project? (Do not round Intermedlate calculations 2. and round your answer to 2 declmel places, e.g., 32.16.) b. Suppose you belleve that the accounting department's Initlal cost and salvage value projections are accurate only to within ±5 percent; the marketing department's price estimate Is accurate only to within ±15 percent; and the englneering department's net working capital estimate is accurate only to within ±10 percent. What are your worst- case and best-case NPVS for this project? (A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-1. OCF a-2. NPV Worst-case NPV -4,814,126.43 b. Best-case NPV %24

Consider a project to supply Detrolt with 26,000 tons of machine screws annually for automobile production. You will need an Initlal $5,900,000 Investment In threading equlpment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,425,000 and that varlable costs should be $270 per ton; accounting will depreclate the Initlal fixed asset Investment stralght-ine to zero over the 6-year project life. It also estimates a salvage value of $800,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $386 per ton. The engineering department estimates you will need an Initlal net working capltal Investment of $570,000. You require a return of 9 percent and face a tax rate of 21 percent on this project. a-1. What Is the estimated OCF for this project? (Do not round Intermedlate calculations and round your answer to the nearest whole number, e.g., 32.) a- What Is the estimated NPV for this project? (Do not round Intermedlate calculations 2. and round your answer to 2 declmel places, e.g., 32.16.) b. Suppose you belleve that the accounting department's Initlal cost and salvage value projections are accurate only to within ±5 percent; the marketing department's price estimate Is accurate only to within ±15 percent; and the englneering department's net working capital estimate is accurate only to within ±10 percent. What are your worst- case and best-case NPVS for this project? (A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-1. OCF a-2. NPV Worst-case NPV -4,814,126.43 b. Best-case NPV %24

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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Consider a project to supply Detrolt with 26,000 tons of machine screws annually for automobile production. You will need an Initlal $5,900,000 Investment In threading equlpment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,425,000 and that varlable costs should be $270 per ton; accounting will depreclate the Initlal fixed asset Investment stralght-Iline to zero over the 6-year project life. It also estimates a salvage value of $800,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $386 per ton. The engineering department estimates you will need an Initlal net working capltal Investment of $570,000. You require a return of 9 percent and face a tax rate of 21 percent on this project a-1. What Is the estimated OCF for this project? (Do not round Intermedlate calculations and round your answer to the nearest whole number, e.g., 32.) a- What Is the estimated NPV for this project? (Do not round Intermedlate calculations 2. and round your answer to 2 declmal places, e.g., 32.16.) b. Suppose you belleve that the accounting department's Initlal cost and salvage value projections are accurate only to within ±5 percent; the marketing department's price estimate is accurate only to within ±15 percent; and the engineering department's net working capital estimate is accurate only to within ±10 percent. What are your worst- case and best-case NPVS for this project? (A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-1. OCF a-2. NPV b. Worst-case NPV -4.814,126.43 Best-case NPV
Transcribed Image Text:Consider a project to supply Detrolt with 26,000 tons of machine screws annually for automobile production. You will need an Initlal $5,900,000 Investment In threading equlpment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,425,000 and that varlable costs should be $270 per ton; accounting will depreclate the Initlal fixed asset Investment stralght-Iline to zero over the 6-year project life. It also estimates a salvage value of $800,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $386 per ton. The engineering department estimates you will need an Initlal net working capltal Investment of $570,000. You require a return of 9 percent and face a tax rate of 21 percent on this project a-1. What Is the estimated OCF for this project? (Do not round Intermedlate calculations and round your answer to the nearest whole number, e.g., 32.) a- What Is the estimated NPV for this project? (Do not round Intermedlate calculations 2. and round your answer to 2 declmal places, e.g., 32.16.) b. Suppose you belleve that the accounting department's Initlal cost and salvage value projections are accurate only to within ±5 percent; the marketing department's price estimate is accurate only to within ±15 percent; and the engineering department's net working capital estimate is accurate only to within ±10 percent. What are your worst- case and best-case NPVS for this project? (A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-1. OCF a-2. NPV b. Worst-case NPV -4.814,126.43 Best-case NPV
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