question 2

 Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial \$4,600,000 investment in threading equipment to get the project started; the project will last for three years. The accounting department estimates that annual fixed costs will be \$750,000 and that variable costs should be \$420 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the three-year project life. It also estimates a salvage value of \$400,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of \$550 per ton. The engineering department estimates you will need an initial net working capital investment of \$460,000. You require a return of 17 percent and face a marginal tax rate of 30 percent on this project.
 a-1 What is the estimated OCF for this project? (Do not round intermediate calculations.)

 OCF \$

 a-2 What is the estimated NPV for this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 NPV \$

 b. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department’s price estimate is accurate only to within ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What is the worst-case NPV for this project? The best-case NPV? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

 Worst-case \$ Best-case \$
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