Peabody Corporation has the following base-case estimates for its new smallengine assembly project:• Price per un it= $500• Variable costs = $120 per unit• Fixed costs = $2.5 million• Demand = 20,000 units per year• Capital investment = $8 million a1 year 0• Product life = 8 years• Salvage value = $500,000• Depreciation method =seven-year MACRS• Tax rate= 35%• MARR = l2%Suppose the company believes that all of its estimates (except the product life, depreciation method, tax rale, and MARR) are accurate only 10 within ±20%.(a) What is the NPW of the project based on its base-case scenario?(b) What is the NPW of the project based on its best-case scenario?(c) What is the worst-case scenario?(d) What conclusion would you make about the project after seeing the scenario analyses?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Peabody Corporation has the following base-case estimates for its new small
engine assembly project:
• Price per un it= $500
• Variable costs = $120 per unit
• Fixed costs = $2.5 million
• Demand = 20,000 units per year
• Capital investment = $8 million a1 year 0
• Product life = 8 years
• Salvage value = $500,000
Depreciation method =seven-year MACRS
• Tax rate= 35%
• MARR = l2%
Suppose the company believes that all of its estimates (except the product life, depreciation method, tax rale, and MARR) are accurate only 10 within ±20%.
(a) What is the NPW of the project based on its base-case scenario?
(b) What is the NPW of the project based on its best-case scenario?
(c) What is the worst-case scenario?
(d) What conclusion would you make about the project after seeing the scenario analyses?

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