The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: $ 50 $ 30 $ 490,000 48,000 units per year However, you recognize that some of these estimates are subject to error. Suppose each variable turns out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.3 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 21%, and the required rate of return is 10%. a. What is project's NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project's NPV in the worst-case scenario? a. NPV b. NPV Note: For all the requirements, a negative amount should be indicated by a minus sign. Enter your answers in dollars, not in millions. Do not round intermediate calculations. Round your answers to the nearest dollar amount.

The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: $ 50 $ 30 $ 490,000 48,000 units per year However, you recognize that some of these estimates are subject to error. Suppose each variable turns out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.3 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 21%, and the required rate of return is 10%. a. What is project's NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project's NPV in the worst-case scenario? a. NPV b. NPV Note: For all the requirements, a negative amount should be indicated by a minus sign. Enter your answers in dollars, not in millions. Do not round intermediate calculations. Round your answers to the nearest dollar amount.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

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