Problem:
We are evaluating a project that costs $680,000, has a five-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 49,000 units per year. Price per unit is $46, variable cost per unit is $26, and fixed costs are $685,000 per year. The tax rate is 35 percent, and we require a 20 percent return on this project.
Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent.
Required:
Calculate the best-case and worst-case NPV figures. Show your all work and describe in detail.