Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $1,440,000 investment in threading equipment to get the project started; the project will last for 7 years. The accounting department estimates that annual fixed costs will be $440,000 and that variable costs should be $180 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 7-year project life. It also estimates a salvage value of $471,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $200 per ton. The engineering department estimates you will need an initial net working capital investment of $352,000. You require a 10 percent return and face a marginal tax rate of 34 percent on this project.
a. The estimated OCF for this project is $ and the NPV is $?. (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))
b. Suppose you believe that the accounting department's initial cost and salvage value projections are accurate only to within ±14 percent; the marketing department's price estimate is accurate only to within ±9 percent; and the engineering department's net working capital estimate is accurate only to within ±3 percent. Your worst-case NPV for this project is $?? and your best-case NPV is $??.(Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))