In: Finance
We are evaluating a project that costs $583,800, has a six-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 90,000 units per year. Price per unit is $41, variable cost per unit is $27, and fixed costs are $695,000 per year. The tax rate is 25 percent, and we require a return of 9 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.
Computation of Cash Flow:
Cash Flow = PAT + Dep
NPV = PV of Cash Inflows - COst
Qty - Best Case Inc
Price - Best Case Inc
Variable Cost - Best case Dec
FIxed COst Best case Dec
Best Case = Normal * 1.1
Worst Case = Normal * 0.9