Question

2.. Perform scenario analysis on the following project by first finding the NPV for the base...

2.. Perform scenario analysis on the following project by first finding the NPV for the base case, then for the worst case and best case.

Base Case

      Investment = $100,000 Straight line depreciation

                                     over 2 years no salvage value

      quantity sold per year = 20,000

      Price per unit = $10 at time zero   4% inflation per year (price)

      Operating Cost = $5 per unit (all variable) at time zero     2% inflation per year (cost)

      Tax rate 25%   cost of capital 10%

      Project will have a 2 year life

Worst Case - Same information as base case but assume quantity sold of 14,000

Best Case - Same information as base case but assume quantity sold of 26,000

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Answer #1

NPV = present value of cash inflows - present Valve or cash out flows. Base case:- Initial investment = $ 100,000 _cashflows(14000X10.4) (14000X 5.1) I worst case. 14000 anits I cash flows year o Revenues clucco x ro) 1400000 () operating costs (140

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