We are evaluating a project that costs $854,000, has a 15-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 154,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $865,102 per year. The tax rate is 33 percent, and we require a 14 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within $\pm$14 percent. What is the worst-case NPV?
A)$984,613
B)$1,267,008
C)$1,489,511
D)$1,782,409
E)$1,993,870

Question

We are evaluating a project that costs $854,000, has a 15-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 154,000 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $865,102 per year. The tax rate is 33 percent, and we require a 14 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within  $\pm$14 percent. What is the worst-case NPV?
A)$984,613
B)$1,267,008
C)$1,489,511
D)$1,782,409
E)$1,993,870

Quizplus · Accepted Answer

OCF_Worst = {[($41 * 0.86) - ($20 * 1.14)][154,000 F*0.86] - ($865,102 * 1.14)}{1 - 0.33) + ($854,000/15)(0.33) = $463,658.70

We Are Evaluating a Project That Costs $854,000, Has a 15-Year