We are evaluating a project that costs $116335, has a seven-year life, and has no salvage...

We are evaluating a project that costs $116335, has a seven-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 4367 units per year. Price per unit is $55, variable cost per unit is $24, and fixed costs are $80248 per year. The tax rate is 36 percent, and we require a 9 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/-9 percent. What is the NPV of the project in worst-case scenario? (Negative amount should be indicated by a minus sign. Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Expert Solution

Time line		0	1	2	3	4	5	6	7



Cost of new machine		-116335

=Initial Investment outlay		-116335


Unit sales			3973.97	3973.97	3973.97	3973.97	3973.97	3973.97	3973.97
Profits	=no. of units sold * (sales price - variable cost)		94938.14	94938.14	94938.143	94938.143	94938.143	94938.143	94938.14
Fixed cost			-87470.3	-87470.3	-87470.32	-87470.32	-87470.32	-87470.32	-87470.3

-Depreciation	Cost of equipment/no. of years		-16619.3	-16619.3	-16619.29	-16619.29	-16619.29	-16619.29	-16619.3

=Pretax cash flows			-9151.46	-9151.46	-9151.462	-9151.462	-9151.462	-9151.462	-9151.46
-taxes	=(Pretax cash flows)*(1-tax)		-5856.94	-5856.94	-5856.936	-5856.936	-5856.936	-5856.936	-5856.94
+Depreciation			16619.29	16619.29	16619.286	16619.286	16619.286	16619.286	16619.29
=after tax operating cash flow			10762.35	10762.35	10762.35	10762.35	10762.35	10762.35	10762.35




+Tax shield on salvage book value	=Salvage value * tax rate								5.24E-12
=Terminal year after tax cash flows									5.24E-12

Total Cash flow for the period		-116335	10762.35	10762.35	10762.35	10762.35	10762.35	10762.35	10762.35
Discount factor=	(1+discount rate)^corresponding period	1	1.09	1.1881	1.295029	1.4115816	1.538624	1.6771001	1.828039
Discounted CF=	Cashflow/discount factor	-116335	9873.715	9058.454	8310.5087	7624.3199	6994.7889	6417.2375	5887.374
NPV=	Sum of discounted CF=	-62169

jeff jeffy answered 1 year ago

We are evaluating a project that costs $118,894, has a seven-year life, and has no salvage...

We are evaluating a project that costs $118,894, has a seven-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 4,101 units per year. Price per unit is $47, variable cost per unit is $30, and fixed costs are $82,846 per year. The tax rate is 36 percent, and we require a 12 percent return on this project. Suppose the projections given for price, quantity, variable...

We are evaluating a project that costs $104,299, has a seven-year life, and has no salvage...

We are evaluating a project that costs $104,299, has a seven-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 4,235 units per year. Price per unit is $50, variable cost per unit is $30, and fixed costs are $81,714 per year. The tax rate is 36 percent, and we require a 9 percent return on this project. Suppose the projections given for price, quantity, variable...

We are evaluating a project that costs $827,000, has an seven-year life, and has no salvage...

We are evaluating a project that costs $827,000, has an seven-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 103,000 units per year. Price per unit is $35, variable cost per unit is $22, and fixed costs are $831,135 per year. The tax rate is 38 percent, and we require a 16 percent return on this project. The projections given for price, quantity, variable costs,...

We are evaluating a project that costs $1,582,000, has a seven-year life, and has no salvage...

We are evaluating a project that costs $1,582,000, has a seven-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 87,100 units per year. Price per unit is $34.30, variable cost per unit is $20.55, and fixed costs are $751,000 per year. The tax rate is 30 percent, and we require a return of 12 percent on this project. Calculate the base-case operating cash flow and...

We are evaluating a project that costs $1,638,000, has a seven-year life, and has no salvage...

We are evaluating a project that costs $1,638,000, has a seven-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 87,900 units per year. Price per unit is $34.70, variable cost per unit is $20.95, and fixed costs are $759,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Suppose the projections given for price,...

We are evaluating a project that costs $100356, has a seven-year life, and has no salvage...

We are evaluating a project that costs $100356, has a seven-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 4229 units per year. Price per unit is $51, variable cost per unit is $30, and fixed costs are $81802 per year. The tax rate is 33 percent, and we require a 11 percent return on this project. Suppose the projections given for price, quantity, variable...

We are evaluating a project that costs $115571, has a seven-year life, and has no salvage...

We are evaluating a project that costs $115571, has a seven-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 4293 units per year. Price per unit is $45, variable cost per unit is $25, and fixed costs are $81427 per year. The tax rate is 35 percent, and we require a 8 percent return on this project. Suppose the projections given for price, quantity, variable...

We are evaluating a project that costs $619,500, has a seven-year life, and has no salvage...

We are evaluating a project that costs $619,500, has a seven-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 $43, variable cost per unit is $30, and fixed costs are $705,000 per year. The tax rate is 22 percent, and we require a return of 11 percent on this project. a-1. Calculate the accounting break-even point....

We are evaluating a project that costs $105790, has a seven-year life, and has no salvage...

We are evaluating a project that costs $105790, has a seven-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 4108 units per year. Price per unit is $54, variable cost per unit is $24, and fixed costs are $83887 per year. The tax rate is 31 percent, and we require a 9 percent return on this project. Suppose the projections given for price, quantity, variable...

We are evaluating a project that costs $103463, has a seven-year life, and has no salvage...

We are evaluating a project that costs $103463, has a seven-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 4108 units per year. Price per unit is $52, variable cost per unit is $29, and fixed costs are $82337 per year. The tax rate is 36 percent, and we require a 9 percent return on this project. Suppose the projections given for price, quantity, variable...

Question