Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production....

80.2K

Verified Solution

Question

Finance

Consider a project to supply Detroit with 27,000 tons of machinescrews annually for automobile production. You will need an initial$6,000,000 investment in threading equipment to get the projectstarted; the project will last for 6 years. The accountingdepartment estimates that annual fixed costs will be $1,450,000 andthat variable costs should be $275 per ton; accounting willdepreciate the initial fixed asset investment straight-line to zeroover the 6-year project life. It also estimates a salvage value of$825,000 after dismantling costs. The marketing departmentestimates that the automakers will let the contract at a sellingprice of $392 per ton. The engineering department estimates youwill need an initial net working capital investment of $580,000.You require a return of 11 percent and face a tax rate of 22percent on this project. a-1. What is the estimated OCF for thisproject? (Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.) a-2. What is theestimated NPV for this project? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.) b. Suppose you believe that the accounting department’sinitial cost and salvage value projections are accurate only towithin ±15 percent; the marketing department’s price estimate isaccurate only to within ±10 percent; and the engineeringdepartment’s net working capital estimate is accurate only towithin ±5 percent. What are your worst-case and best-case NPVs forthis project?

Answer & Explanation Solved by verified expert
4.2 Ratings (662 Votes)
Base    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students