Ch_11_Inclass_Exercises_Solutions

Ch_11_Inclass_Exercises_Solutions - Ch 11 Inclass Exercises...

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1 Ch 11 Inclass Exercises Solutions Scenario Analysis ABC is considering a 5 year project costing $480,000. The price estimate is $60 plus or minus 4%. The unit sales are projected to be 8,000 plus or minus 5%. The variable cost per unit is estimated to be $30 plus or minus 3% and fixed costs are projected to be $80,000 pus or minus 2%. The marginal tax rate is 30% and the firm’s cost of capital for projects of this risk level is 14%. 1. What are the projected sales for the worst case? (437,760) 2. What is the projected NPV for the base case? (3,378) 3. Should the firm do the project? (Not without more analysis) Tax Rate 30% Project Cost 480,000 Life 5 Cost of Capital 14.0% Worst Case Base Case Best Case % Chg Unit Sales 7,600 8,000 8,400 5.0% Price per unit 57.60 60.00 62.40 4.0% VC per unit 30.90 30.00 29.10 3.0% Fixed Cost 81,600 80,000 78,400 2.0% Scenario Analysis Worst Case Base Case Best Case Sales 437,760 480,000 524,160 VC 234,840 240,000 244,440 FC 81,600 80,000 78,400 Depreciation(SL)
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Ch_11_Inclass_Exercises_Solutions - Ch 11 Inclass Exercises...

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