Homework answers / question archive / The most likely outcomes for a project are estimated as follows: Unit price: $120; Variable cost per unit: $30; Fixed cost per year: $300000; Expected sales: 30000 units per year However, you recognize that some of these estimates are subject to error

The most likely outcomes for a project are estimated as follows: Unit price: $120; Variable cost per unit: $30; Fixed cost per year: $300000; Expected sales: 30000 units per year However, you recognize that some of these estimates are subject to error

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The most likely outcomes for a project are estimated as follows:

Unit price: $120; Variable cost per unit: $30; Fixed cost per year: $300000; Expected sales: 30000 units per year

However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate for the best-case scenario and worst-case scenario respectively. The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 35%, and the required rate of return is 12%.

a) What is project NPV in the best-case scenario, that is, assuming all estimated variables take on the best possible value?

b. What is project NPV in the worst-case scenario, that is, assuming all estimated variables take on the worst possible value?