We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within \pm 10 percent. Calculate the best-case and worst -case NPV figures.
We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within \pm 10 percent. Calculate the best-case and worst -case NPV figures.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:We are evaluating a project that costs $2,190,000, has a 8-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 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05,
and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of
11 percent on this project. Suppose the projections given for price, quantity, variable costs,
and fixed costs are all accurate to within \pm 10 percent. Calculate the best-case and worst
-case NPV figures.
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