# Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production....

###### Question:

Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $4,500,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be$1,075,000 and that variable costs should be $200 per ton; accounting will depreciate the in itial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of$450,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $302 per ton. The engineering department estimates you will need an initial net working capital investment of$430,000. You require a return of 11 percent and face a tax rate of 22 percent on this project a-1.What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a What is the estimated NPV for this project? (Do not round intermediate calculations 2. and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within 10 percent; the marketing department's price estimate is accurate only to within +5 percent; and the engineering department's net working capital estimate is accurate only to within #15 percent. What are your worst- case and best-case NPVS for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |а-1. ОCF $1,348,500 a-2. NPV$ 517,402.62 b. Worst-case NPV 994,728.03 Best-case NPV

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