You are given the following forecasted data about a project • Project life = 3 years Required investment $1,200,000 • Salvage value $200,000 • Depreciation method straight-line depreciation • Unit price $140 • First year's demand 100,000 units Annual demand growth rate % • Unit variable cost $80 Annual fixed cost $10,000 • Income tax rate 40% • MARR 10 Suppose the key variable is identified here to be the first year's demand. This variable's most likely value is 100,000 units (as indicated above), but what would happen to the NPW if it were 120,000 units instead? The change in the NPW values (new NPW-original NPW) is closest to:
You are given the following forecasted data about a project • Project life = 3 years Required investment $1,200,000 • Salvage value $200,000 • Depreciation method straight-line depreciation • Unit price $140 • First year's demand 100,000 units Annual demand growth rate % • Unit variable cost $80 Annual fixed cost $10,000 • Income tax rate 40% • MARR 10 Suppose the key variable is identified here to be the first year's demand. This variable's most likely value is 100,000 units (as indicated above), but what would happen to the NPW if it were 120,000 units instead? The change in the NPW values (new NPW-original NPW) is closest to:
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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Transcribed Image Text:QUESTION 2
You are given the following forecasted data about a project:
• Project life =3 years
Required investment $1,200.000
• Salvage value $200,000
• Depreciation method straight-line depreciation
• Unit price = $140
• First year's demand 100.000 units
· Annual demand growth rate 5%
• Unit variable cost $80
• Annual fixed cost $10,000
• Income tax rate 40%
• MARR 10%
Suppose the key variable is identified here to be the first year's demand. This variable's most likely value is 100,000 units (as indicated above), but what would happen to
the NPW if it were 120,000 units instead? The change in the NPW values (new NPW- original NPW) is closest to:
-$1,875,732.53
$1,875,732.53
-$1,563,110.44
$1,563, 110.44
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