For the best case scenario, the price and quantity increase by 10%. and the variable costs and fixed costs both decrease by 10%.
For the worst case scenario, the price and quantity decrease by 10%. and the variable costs and fixed costs both increase by 10%.
We will use the tax shield approach to calculate the OCF. The OCF is:
OCFbase = [(P – VC)Q – FC](1 –t) + Depreciation(t)
OCFbase = [($35.95 – 21.40)(91 000) – $775 000](0.65) + 0.35($1 675 000/6) = $356882.5 + 97708.33
OCF base = $ 454590.83
Now we can calculate the NPV using our base-case projections. There is no salvage value or NWC, so theNPV is:
NPVbase = –$1 675 000 + 454590.83 * PVIFA
=–$1675000 + 454590.83 * 4.230538
= 248163.71
OCFbest case = [(P – VC)Q – FC](1 –t) + Depreciation(t)
OCFbest = [($39.545 – 19.26)(100100) – $697500](0.65) + 0.35($1 675 000/6) = $866468.525 + 97708.33
OCF best = $ 964176.855
Now we can calculate the NPV using our best-case projections. There is no salvage value or NWC, so theNPV is:
NPVbest = –$1675000 + 964176.855 * PVIFA
=–$1675000 + 964176.855 * 4.230538
= 2403986.82
OCFworst case = [(P – VC)Q – FC](1 –t) + Depreciation(t)
OCFWorst = [($32.355 – 23.54)(81900) – $852500](0.65) + 0.35($1675000/6) = $-84858.475 + 97708.33
OCF Worst = $ 12849.855
Now we can calculate the NPV using our Worst-case projections. There is no salvage value or NWC, so theNPV is:
NPV Worst = –$1675000 + 12849.855 * PVIFA
=–$1675000 + 12849.855 * 4.230538
= -1620638.2
18. We are evaluating a project that costs $1.675,000, has a six-year life, and has no...
We are evaluating a project that costs $744,000, 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 45,000 units per year. Price per unit is $60, variable cost per unit is $20, and fixed costs are $740,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $788,400, has a nine-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 $52, variable cost per unit is $36, and fixed costs are $750,000 per year. The tax rate is 21 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...
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We are evaluating a project that costs $2,010,000, has a 7-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 89,400 units per year. Price per unit is $38.61, variable cost per unit is $23.75, and fixed costs are $848,000 per year. The tax rate is 21 percent and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...
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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 39,000 units per year. Price per unit is $41, 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,...
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We are evaluating a project that costs $569,100, 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 85,000 units per year. Price per unit is $40, variable cost per unit is $26, and fixed costs are $690,000 per year. The tax rate is 24 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...
We are evaluating a project that costs $788,400, has a nine-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 $52, variable cost per unit is $36, and fixed costs are $750,000 per year. The tax rate is 21 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity,...