P11-6 Scenario Analysis [LO2]

We are evaluating a project that costs $829,000, has a life of eight years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 100,000 units per year. Price per unit is $42, variable cost per unit is $24, and fixed costs are $836,461 per year. The tax rate is 23 percent, and we require a return of 19 percent on this project. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 13 percent.

a. Calculate the best-case NPV.

b. Calculate the worst-case NPV.