Problem:
A project aims to supply Detroit with 50,000 tons of machine screws annually for automobile production. You will need an initial $1,750,000 investment in threading equipment to get the project started; the project will last for 8 years. The accounting department estimates that annual fixed costs will be $450,000 and that variable costs should be $180 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 8-year project life. It also estimates a salvage value of $513,000 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 $450,000. You require a 12 % return and face a marginal tax rate of 39 % on this project. (Round answers to 2 decimal places.)
a. The estimated OCF for this project is $_______ and the NPV is $_______ .
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 $______.