Wendy and Wayne are evaluating a project that requires an initial investment of $788,000 in fixed assets. The project will last for nine years, and the assets have no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 155,000 units per year. Price per unit is $45, variable cost per unit is $23, and fixed costs are $801,396 per year. The tax rate is 30 percent, and the required annual return on this project is 17 percent. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 15 percent. Required: (a)Calculate the best-case NPV. (Do not round your intermediate calculations.) (Click to select) ♥ (b)Calculate the worst-case NPV. (Do not round your intermediate calculations.) (Click to select)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 13P
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Wendy and Wayne are evaluating a project that requires an initial investment of
$788,000 in fixed assets. The project will last for nine years, and the assets have no
salvage value. Assume that depreciation is straight-line to zero over the life of the
project.
Sales are projected at 155,000 units per year. Price per unit is $45, variable cost per unit
is $23, and fixed costs are $801,396 per year. The tax rate is 30 percent, and the
required annual return on this project is 17 percent. The projections given for price,
quantity, variable costs, and fixed costs are all accurate to within +/- 15 percent.
Required:
(a)Calculate the best-case NPV. (Do not round your intermediate calculations.)
(Click to select) ♥
(b)Calculate the worst-case NPV. (Do not round your intermediate calculations.)
(Click to select)
Transcribed Image Text:Wendy and Wayne are evaluating a project that requires an initial investment of $788,000 in fixed assets. The project will last for nine years, and the assets have no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 155,000 units per year. Price per unit is $45, variable cost per unit is $23, and fixed costs are $801,396 per year. The tax rate is 30 percent, and the required annual return on this project is 17 percent. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 15 percent. Required: (a)Calculate the best-case NPV. (Do not round your intermediate calculations.) (Click to select) ♥ (b)Calculate the worst-case NPV. (Do not round your intermediate calculations.) (Click to select)
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