Proposed project to produce printer cartridges

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Reference no: EM131861689

As a financial to analyst, you must evaluate a proposed project to produce printer cartridges. The equipment would cost $55,000, plus $10,000 for installation. annual sales would be 4,000 units at a price of $50 per cartridge, and the project's life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. at the end of 3 years, the equuipment could be sold for $10,000. Depreciation would be based on the MACRS 3-year class; so the applicable depreciation rates would be 33%, 45%, 15%, and 7%. Variable costs (VC) would be 70% of sales revenues, fixed costs excluding depreciation would be $30,000 per year, the marginal tax rate is 40%, and the corporate WACC is 11%.

a. Suppose management is uncertain about the exact unit sales. What would be the project's NPV be if unit sales turned out to be 20% below forecast but other inputs were as forecasted? Would this change the decision? Explain.

b. The CFO asks you do a scenario analysis using these inputs.

Reference no: EM131861689

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