The most likely outcomes for a particular project are estimated as follows:
Unit price: $50
Variable cost: $30
Fixed cost: $370,000
Expected sales: 36,000 units per year
However, you recognize that some of these estimates are subject to error.
Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate.
The project will last for 10 years and requires an initial investment of $1.4 million, which will be depreciated straight-line over the project life to a final value of zero.
The firm’s tax rate is 30% and the required rate of return is 14%.
What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)
NPV $
What is project NPV in the worst-case scenario? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)
NPV $