Nikul We are evaluating a project that costs $1,920,000, has a life of 6 years, and has no salvage value. Assume thatdepreciation is straight-line to zero over the life of the project. Sales are projected at 94,500 units per year. Priceper unit is $38.43, variable cost per unit is $23.60, and fixed costs are $839,000 per year. The tax rate is 23percent, 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 ±10percent. Calculate the best-case and worst-case NPV figures.Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations andround your answers to 2 decimal places, e.g. 32.16.× Answer is complete but not entirely correct.1,111,083.00 $OCFBest-caseWorst-case$-189.17NPV2,913,723.50-2,216,283.27

First, let's calculate the annual cash flows for the project: Sales revenue per year = 94,500…

Answered: We are evaluating a project that costs…

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 $1,830,000, has a 6-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 88,600 units per year. Price per unit is $38.25, variable cost per unit is $23.45, and fixed costs are $830,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on this project a. Calculate the base-case operating cash flow and NPV. Note: Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the sensitivity of NPV to changes in the sales figure? Note: Do not round Intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. If there is a 400-unit decrease in projected sales, how much would the NPV change? Note: A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the sensitivity of…
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