Problem 9-21 Scenario Analysis [LO 3]We are evaluating a project that costs $2,190,000, has a 8-year life, and has no salvage value. Assume that depreciationis straight-line to zero over the life of the project. Sales are projected at 91,200 units per year. Price per unit is $38.97,variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require areturn of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs areall accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and roundyour answers to 2 decimal places, e.g., 32.16.Best-case NPVWorst-case NPV

Project cost = $2,190,000Useful life = 8 yearsDepreciation = 2190000 / 8 = $273,750Sales = 91,200…

Answered: We are evaluating a project that costs…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 17PROB

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A3 8aiv You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.                            a. Calculate the following six numbers for this project. Round your answers to two decimal places.                                                                   (iv) Discounted payback period (in years)
A3 8avi You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.                            a. Calculate the following six numbers for this project. Round your answers to two decimal places. (vi) Average Accounting Return (AAR in %)                                                           Hint: Net Income = {[(Price – variable cost)*Quantity Sold] – Fixed Costs – Depreciation} * (1 – Tax rate)
A3 8aii You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.                            a. Calculate the following six numbers for this project. Round your answers to two decimal places.    (ii) Profitability Index (PI)
A3 8ai You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.                            a. Calculate the following six numbers for this project. Round your answers to two decimal places. (i) NPV
A3 8aiii You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.                            a. Calculate the following six numbers for this project. Round your answers to two decimal places.                                                                  (iii) Payback period (in years)
Question 10 An investment has an initial cost of $410,000 and will generate the net income amounts shown below. This investment will be depreciated straight line to zero over the 4-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not? Year      Net Income   1                $21,000 2                  24,800 3                  37,500 4                  45,000 Group of answer choices Yes; because the AAR is greater than 16 percent No; because the AAR is less than 16 percent Yes; because the AAR is less than 16 percent Yes; because the AAR is equal to 16 percent No; because the AAR is greater than 16 percent
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1 Downside scenarios Consider a proposal to produce and market a new tennis racquet. The most likely outcome scenario for the project incl. Expected sales of 30,000 units per year, Unit price of $200, Variable cost per racquet of $120, Fixed cost of $1,200,000. The project will last for 10 years and requires an initial investment of $4 million, which will be depreciated straight-line over the project life to a fnal value of zero. The firm´s tax rate is 30%, and the required rate of return is 12%. 1. What is the project NPV? However, you recognize that some of these estimates are subject to error. Sales could fall 20% below expectations for the life of the project and, if that happens, the unit price would probably be only $150. The good news is that Öxed costs could be as low as $800,000, and total Variable costs1 would decline in proportion to sales. 2. What is NPV in the worst-case scenario?3. How else could you consider the downside scenario in your NPV calculation? (Answer…
Question 52 RESOURCES Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $125,368. It will have a useful life of 4 years and no salvage value. Annual Cash inflows would increase by $79,600, and annual cash outflows would increase by $39,700 The company's required rate of return is 10% Click here toview PW table. Calcul ate the net present value on this project. (If the net present value is negative, use elther a negative sign preceding the number eg -45 or parentheses eg (45) Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) uestion 3 Net present value uestion 7 Whether this project should be accepted?
1 2 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. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Explain what your answer tells you about a 500-unit decrease in the quantity sold. c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. 3 4 Input area: 5 6 Initial cost 7 Project life 8 Units sales 9 Price/unit 10 Variable cost/unit 11 Fixed costs 12 Tax…
Project Evaluation [LO1] Dog Up! Franks is looking at a new sausage systemwith an installed cost of $460,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $55,000. The sausage system will save the firm $155,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 21 percent and the discount rate is 10 percent, what is the NPV of this project?

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