Problem:
Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for six years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $200 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the six-year project life. It also estimates a salvage value of $680,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $300 per ton. The engineering department estimates you will need an initial net working capital investment of $580,000. You require a 18 percent return and face a marginal tax rate of 30 percent on this project.
Required:
Question 1: What is the estimated OCF for this project?
Question 2: What is the estimated NPV for this project?
Note: Explain all steps comprehensively.