We are evaluating a project that costs $800,000, has an eight-year life, and has no salvage...

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We are evaluating a project that costs $800,000, has aneight-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 60,000 units per year. Price per unit is $40, variablecost per unit is $20, and fixed costs are $800,000 per year. Thetax rate is 35 percent, and we require a return of 10 percent onthis 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.(Negative amounts should be indicated by a minus sign. Do not roundintermediate calculations and round your final answers to 2 decimalplaces, e.g., 32.16.)
NPV Best-case $
Worst-case $

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3.7 Ratings (545 Votes)

Initial Investment 800000Useful Life 8 yearsAnnual Depreciation Initial Investment Useful LifeAnnual Depreciation 800000 8Annual Depreciation See Answer

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We are evaluating a project that costs $800,000, has aneight-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales areprojected at 60,000 units per year. Price per unit is $40, variablecost per unit is $20, and fixed costs are $800,000 per year. Thetax rate is 35 percent, and we require a return of 10 percent onthis 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.(Negative amounts should be indicated by a minus sign. Do not roundintermediate calculations and round your final answers to 2 decimalplaces, e.g., 32.16.)NPV Best-case $Worst-case $