Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project’s NPV to different scenarios that are defined in terms of the estimated values for each of the project’s value drivers. Please work on two scenarios corresponding to the worstand best-case outcomes for the project. You need to provide your results in (a) relevant tables

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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: Assume that the company, where you are working as a team in Financial
Department, is considering a potential project with a new product that is expected to sell for
an average price of $22 per unit and the company expects it can sell 650 000 unit per year at
this price for a period of 4 years. Launching this project will require purchase of a $3 500 000
equipment that has residual value in four years of $500 000 and adding $ 850 000 in working
capital
which is expected to be fully retrieved at the end of the project. Other information is
available below:
Depreciation method: straight line
Variable cost per unit: $17
Cash fixed costs per year: $450 000
Discount rate: 10%
Tax Rate: 30%
Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of
the project’s NPV to different scenarios that are defined in terms of the estimated values for
each of the project’s value drivers. Please work on two scenarios corresponding to the worstand best-case outcomes for the project. You need to provide your results in (a) relevant tables

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