We are evaluating a project that costs $854,000, has a 15-year life, and has no

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

Explanation / Answer

$1,993,870

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

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