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user100 [1]
2 years ago
14

A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and has no salvage value. Assume depreciat

ion is straight line to zero over the life of the project. Sales are projected at 31,000 units per year, the price per unit is $47, variable cost per unit is $23, and fixed costs are $842,900 per year. The tax rate is 23 percent and the required return is 11.5 percent. Suppose the projections given for price and quantity can vary by ±4 percent while variable and fixed cost estimates are accurate to within ±2 percent. What is the best-case NPV?
Business
1 answer:
Nat2105 [25]2 years ago
5 0

Answer:

NPV = -$132,193.77

Explanation:

best case NPV:

price per unit (+4%) = $48.88

sales per year (+4%) = 32,240

variable cost per unit (-2%) = $22.54

fixed costs (-2%) = $826,042

depreciation expense per year = $227,000 / 4 = $56,750

contribution margin per unit = $26.34

23% tax rate

discount rate = 11.5%

initial outlay = $227,000

net cash flows = {[($26.34 x 32,240) - $826,042 - $56,750] x 77%} + $56,750 = $30,885.392

NPV = -$132,193.77

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Economic profit on the other hand is calculated by deducting both explicit and implicit costs from revenue.

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If a coconut is a normal good and the price of coconuts increases, then the movement that would take place in the model could be B to A.

<h3>What happens when prices rise?</h3><h3 />

For Normal goods, a rise in prices would mean a fall in the quantity demanded. This is shown by the demand curve which shows the relationship between the quantity demanded and price.

When there is a price change, the movement will be along the demand curve which means that the demand curve would see a movement from Point B to Point A for coconuts.

Find out more on price changes and the demand curve at brainly.com/question/1139186

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