Keystone Tool is evaluating a proposed project that costs $1,500,000, has a 6-year life, and no salvage value.Depreciation is straight-line to zero over the life of the project.Sales are projected at 100,000 units per year.Price per unit is $60, variable cost per unit is $25, and fixed costs are $2,100,000 per year.The tax rate is 40% and a 12% return is required. Suppose projections given for price, quantity, variable costs and fixed costs are all accurate to within plus or minus 10%.
a) What is the operating cash flow under the best case scenario?
b) If the project requires an investment of $250,000 in net working capital, which will be recovered at the end of the project, what is the project’s best case NPV?