We are evaluating a project that costs $924,000, has an eight-year life, and has

Question

We are evaluating a project that costs $924,000, has an eight-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 75,000 units per year. Price per unit is $46, variable cost per unit is $31, and fixed costs are $825,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within

Explanation / Answer

best case NPV= 924000-75000-825000+.15*825000-0.35*24000=$139350

worst case NPV= -10% of 139350

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