Consider a project to supply Detroit with 60,000 tons of machine screws annually for automobile production. You
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a. What is the estimated OCF for this project? The NPV? Should you pursue this project?
b. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ± 15 percent; the marketing department’s price estimate is accurate only to within ± 10 percent; and the engineering department’s net working capital estimate is accurate only to within ± 5 percent. What is your worst-case scenario for this project? Your best-case scenario? Do you still want to pursue the project?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
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