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What are the revised values for the NPV? NPV Best Case Scenario = $  . NPV Base Case Scenario = $  . NPV Worst-case Scenario = -$  . Expected NPV = $

What are the revised values for the NPV? NPV Best Case Scenario = $  . NPV Base Case Scenario = $  . NPV Worst-case Scenario = -$  . Expected NPV = $

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. 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 equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACC is 11%.

The firm’s project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated.

What are the revised values for the NPV?

  • NPV Best Case Scenario = $  .
  • NPV Base Case Scenario = $  .
  • NPV Worst-case Scenario = -$  .
  • Expected NPV = $ 
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