1. You are considering aproject that will supply an automobile production facility with35,000 tonnes of machine screws annually for five years. To get theproject started, you will need an initial $1,500,000 investment inthreading equipment. The project will last for five years. Theaccounting department estimates that annual fixed costs will be$300,000 and that variable costs should be $200 per tonne. The CCArate for treading equipment is 20%. Accounting estimates a salvagevalue of $500,000 after costs of dismantling. The marketingdepartment estimates that the auto makers will accept the contractat a selling price of $230 per tonne. The engineering departmentestimates you will need an initial net working capital investmentof $450,000. You require a 13% return and face a marginal tax rateof 38% on this project.              (14 marks total)

a.   What is the NPVfor this project? Should you pursue this project?       

b. Suppose you believe thatthe accounting department’s initial cost and salvage projectionsare accurate only to within ±15%; the marketingdepartment’s price estimate is accurate only to within±10%; and the engineering department’s net working capitalestimate is accurate only to within ±5%. What isyour worst-case scenario for this project? Your best-case scenario?