We are evaluating a project that costs $1,675,000, has a six-year life, and has

Question

We are evaluating a project that costs $1,675,000, 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 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.

Required: Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case figure (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

BEST-CASE NPV IS?

for reference the WORST-CASE NPV IS -1620634.97

Explanation / Answer

the total revenue= 91000 X $35.95= $3,271,450

annual fixed cost= $775,000

= 3,271,000 - 775,000= $2,496,450

variable cost total= $21.4 X 91000= $1,947,400

the revenu would be= $549050 per one year

for 6 years= $3,294,300

NPV= $1596450

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