A 6-year project has expected sales of 2,000 units,±4 percent.The expected variable cost per unit is $8,and the expected fixed costs are $9,800.The fixed and variable cost estimates are considered accurate within a range of ±2 percent.The sales price is estimated at $22 a unit,±3 percent.The project requires an initial investment of $42,000 for equipment that will be depreciated straight-line to zero over the project's life.The equipment has a pretax salvage value of $5,000 at the end of the project.The project requires $2,600 in net working capital during its life.The discount rate is 9 percent,and tax rate is 30 percent.What is the net present value for the optimistic scenario?

Question

Quizplus · Accepted Answer

OCF _Optimistic = {(2,000 × 1.04)× [($22 × 1.03)- ($8 × 0.98)] - ($9,800 × 0.98)}{1 - 0.30)+ [($42,000 / 6)× 0.30] = $16,955.12 NPV _Optimistic = -$42,000 - $2,600 + $16,955.12[(1 - 1 / 0.09⁶)/ 0.09] + {[$5,000 × (1 - 0.30)] + $2,600} / 1.09⁶ = $35,096.52

A 6-Year Project Has Expected Sales of 2,000 Units,±4 Percent