Please show all work with formulas Need to see the formulas in order to understa

Question

Please show all work with formulas

Need to see the formulas in order to understand the question.

Please do not use Microsoft Excel

Thank you

3. We are evaluating a project that costs $1,160,000, has a ten-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 44,000 units per year. Price per unit is $45, variable cost per unit is $20, and fixed costs are $645,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g. 32.16.) NPV Best-case Worst-case

Explanation / Answer

In best-case sales and price are increased by 10%, while costs are reduced by 10%.

In worst-case sales and price are decreased by 10%, while costs are increased by 10%.

OCF = (Sales - Costs)*(1-tax) + Tax*depreciaiton

Best case:

OCF = (48400*(49.5-18)-580500)*(1-0.35) + 0.35*1160000/10 = 654265.00

NPV = -1160000 + 654265/(1+0.2)^1 + 654265/(1+0.2)^2 + 654265/(1+0.2)^3 + 654265/(1+0.2)^4 + 654265/(1+0.2)^5 + 654265/(1+0.2)^6 + 654265/(1+0.2)^7 + 654265/(1+0.2)^8 + 654265/(1+0.2)^9 + 654265/(1+0.2)^10 = 1582987.75

NPV = $1582987.75

Worst-case:

OCF = (39600*(40.5-22)-709500)*(1-0.35) + 0.35*1160000/10 = 55615.00

NPV = -1160000 + 55615/(1+0.2)^1 + 55615/(1+0.2)^2 + 55615/(1+0.2)^3 + 55615/(1+0.2)^4 + 55615/(1+0.2)^5 + 55615/(1+0.2)^6 + 55615/(1+0.2)^7 + 55615/(1+0.2)^8 + 55615/(1+0.2)^9 + 55615/(1+0.2)^10 = -926835.66

NPV = -$926835.66

Unit Sales Price Variable costs Fixed costs Base 44000.00 45.00 20.00 645000.00 Best 48400.00 49.50 18.00 580500.00 Worst 39600.00 40.50 22.00 709500.00

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