Am. 111. We are evaluating a project that costs $787,000, has a life of twelve years, and has nosalvage value. Assume that depreciation is straight-line to zero over the life of theproject. Sales are projected at 159,000 units per year. Price per unit is $44, variable costper unit is $28, and fixed costs are $789,361 per year. The tax rate is 22 percent, and werequire a return of 18 percent on this project. The projections given for price, quantity,variable costs, and fixed costs are all accurate to within +/- 17 percent.a. Calculate the best-case NPV.Best case$ 16,473,959b. Calculate the worst-case NPV.Worst case13

Best-Case Scenario (17% Increase):Sales Quantity: 100,000 * 1.17 = 117,000 unitsPrice: $50 * 1.17 =…

Answered: We are evaluating a project that costs…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

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We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvagevalue. Assume that depreciation is straight-line to zero over the life of the project. Sales areprojected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, andfixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15percent on this project.(i) Calculate the base-case cash flow and NPV. (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPVto changes in the sales figure?

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