Question: As a financial analyst, you must evaluate a proposed project to produce pen drives. The equipment would cost $60,000, plus $10,000 for installation. Annual sales
As a financial analyst, you must evaluate a proposed project to produce pen drives. The equipment would cost $60,000, plus $10,000 for installation. Annual sales would be 12,000 units at a price of $22 per drive, and the project’s life would be 3 years. Current assets would increase by $10,000 and payables by $5,000. At the end of 3 years, the equipment could be sold for $15,000. Depreciation would be based on the MACRS 3-year class, so the applicable rates would be 33%, 45%, 15%, and 7%. Fixed costs excluding depreciation would be $50,000 per year; the marginal tax rate is 40%; and the corporate WACC is 12%. The CFO asks you to do a scenario analysis using these inputs: Best Case Base Case Worst Case Probability Unit Sales 20% 14,000 60% 12,000 20% 10,000 VC (%) 60% 70% 80% Other variables are unchanged. What are the expected NPV, the standard deviation, and the coefficient of variation
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1 BASE CASE 0 1 2 3 Sales in units 12000 12000 12000 Sales revenue 264000 264000 264000 Variable cos... View full answer
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