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 ±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

Quizplus · Accepted Answer

OCF_Worst = {[($41 × 0.86) - ($20 × 1.14)][154,000 × 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