We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 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. Note: 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. Answer is complete but not entirely correct. 3,537,150.96 -3,452,007.15 Best-case NPV Worst-case NPV $

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P
icon
Related questions
icon
Concept explainers
Topic Video
Question
We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97,
variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return
of 11 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.
Note: 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.
Answer is complete but not entirely correct.
$
3,537,150.96
$ -3,452,007.15
Best-case NPV
Worst-case NPV
Transcribed Image Text:We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 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. Note: 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. Answer is complete but not entirely correct. $ 3,537,150.96 $ -3,452,007.15 Best-case NPV Worst-case NPV
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning