A 6-year project has expected sales of 2,000 units, 4 percent. Theexpected variable cost per unit is $8, and the expected fixed costs are $9,800. The fixed and variable cost estimates are considered accurate within a range of 2 percent. The sales price is estimated at $22 a unit, 3 percent. The project requires an initial investment of $42,000 for

A 6-year project has expected sales of 2,000 units, ±4 percent. Theexpected variable cost per unit is $8, and the expected fixed costs are $9,800. The fixed and variable cost estimates are considered accurate within a range of ±2 percent. The sales price is estimated at $22 a unit, ±3 percent. The project requires an initial investment of $42,000 for equipment that will be depreciated straight-line to zero over the project's life. The equipment has a pretax salvage value of $5,000 at the end of the project. The project requires $2,600 in net working capital during its life. The discount rate is 9 percent, and tax rate is 30 percent. What is the net present value for the optimistic scenario?

Multiple Choice 

1. $35,096.52
2. $28,008.46
3. $31,490.07
4. $22,295.33
5. $34,008.12

Expert Answer

Solution to the Question: Under the optimistic scenario, the costs of the project would decrease and View the full answer