What are the best and worst case npvs?

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Consider a project to supply Detroit with 42,000 tons of machine screws annually for automobile production. You will need an initial $1,848,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $546,000 and that variable costs should be $210 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life.

It also estimates a salvage value of $584,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $290 per ton. The engineering department estimates you will need an initial net working capital investment of $546,000. You require a 10 percent return and face a marginal tax rate of 39 percent on this project.

Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within ±14 percent; the marketing department's price estimate is accurate only to within ±11 percent; and the engineering department's net working capital estimate is accurate only to within ±7 percent. What are the Best and Worst case NPVs?

Reference no: EM13849167

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