Problem $9-26$ Scenario Analysis

Consider a project to supply Detroit with $40,000$ tons of machine screws annually for automobile production. You will need an initial $\backslash (\backslash$$ $5,200,000\backslash )$ investment in threading equipment to get the project started; the project will last for six years. The accounting department estimates that annual fixed costs will be $\backslash (\backslash$$ $800,000\backslash )$ and that variable costs should be $\backslash (\backslash$$ $350\backslash )$ per ton; accounting will depreciate the initial fixed asset investment straight$-$line to zero over the six$-$year project life. It also estimates a salvage value of $\backslash (\backslash$$ $280,000\backslash )$ after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $\backslash (\backslash$$ $450\backslash )$ per ton. The engineering department estimates you will need an initial net working capital investment of $\backslash (\backslash$$ $520,000\backslash ).$ You require a return of $16$ percent and face a marginal tax rate of $22$ percent on this project.

a$-1.$ What is the estimated OCF for this project?

Note: Do not round intermediate calculations and round your answer to the nearest whole number, e$.$g$.,32.$

$\backslash (\backslash$mathbf$\{0-2\}\backslash ).$ What is the estimated NPV for this project?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$.$ Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within $\backslash (\backslash$pm $15\backslash )$ percent; the marketing department's price estimate is accurate only to within $\backslash (\backslash$pm $10\backslash )$ percent; and the engineering department's net working capital estimate is accurate only to within $\backslash (\backslash$pm $5\backslash )$ percent. What is the worst$-$case NPV for this project? The best$-$case NPV$?$

Note: 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$.,32\mathrm{.}16.$