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XYZ Inc is looking at a project to manufacture widgets. Assume we have the following data: • The initial cost of the project is $1,080,000. • The project is expected to last 7 years, at which time the project will be abandon. • Assume each widget will cost $8.00 each to produce and the selling price will be $12.00. Production fixed costs are expected to be $248,400 annually. • The company has computed that the PVCCATS associated with this project will be $237,600. Also, the company uses a discount rate of 9% for capital projects and XYZ pays tax at a rate of 10%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 128,000 units with a standard deviation of o = 21,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? Yes Ο No

XYZ Inc is looking at a project to manufacture widgets. Assume we have the following data: • The initial cost of the project is $1,080,000. • The project is expected to last 7 years, at which time the project will be abandon. • Assume each widget will cost $8.00 each to produce and the selling price will be $12.00. Production fixed costs are expected to be $248,400 annually. • The company has computed that the PVCCATS associated with this project will be $237,600. Also, the company uses a discount rate of 9% for capital projects and XYZ pays tax at a rate of 10%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 128,000 units with a standard deviation of o = 21,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? Yes Ο No

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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XYZ Inc is looking at a project to manufacture widgets. Assume we have the following data: • The initial cost of the project is $1,080,000. • The project is expected to last 7 years, at which time the project will be abandon. • Assume each widget will cost $8.00 each to produce and the selling price will be $12.00. Production fixed costs are expected to be $248,400 annually. • The company has computed that the PVCCATS associated with this project will be $237,600. Also, the company uses a discount rate of 9% for capital projects and XYZ pays tax at a rate of 10%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 128,000 units with a standard deviation of o= = 21,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? Yes No
Transcribed Image Text:XYZ Inc is looking at a project to manufacture widgets. Assume we have the following data: • The initial cost of the project is $1,080,000. • The project is expected to last 7 years, at which time the project will be abandon. • Assume each widget will cost $8.00 each to produce and the selling price will be $12.00. Production fixed costs are expected to be $248,400 annually. • The company has computed that the PVCCATS associated with this project will be $237,600. Also, the company uses a discount rate of 9% for capital projects and XYZ pays tax at a rate of 10%. XYZ is unsure as to how many widgets they will sell annually. The marketing department has provided that the expected number of units sold annually, N is E(N) = 128,000 units with a standard deviation of o= = 21,000 units. (a) Compute the expected NPV, E(NPV) of this project. 数字 (b) Compute the standard deviation of the NPV of this project. 数字 (c) Compute the NPV breakeven point of this project. 数字 units. (d) Based on the expected NPV calculation, should XYZ Inc proceed with this project? Yes No
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