Question: We are evaluating a project that costs $845,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over


We are evaluating a project that costs $845,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +10 percent. Calculate the best-case and worst-case NPV figures. Input area: Initial cost Project life Units sales Price per unit Variable cost per unit Fixed costs Tax rate Required return Price uncertainty Quantity uncertainty Variable cost uncertainty Fixed cost uncertainty $845,000 8 51,000 $53 $27 $950,000 22% 10% 10% 10% 10% 10% (Use cells A6 to B17 from the given information to complete this question. You must use the built-in Excel function to answer this question. The OCF must be calculated using the depreciation tax shield approach.) Output area: Scenario Unit sales Unit price Unit variable cost Fixed costs Best-case Worst-case Best-case OCF Best-case NPV Worst-case OCF Worst-case NPV
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