A manufacturing firm is considering the purchase of a certain machine center. The firm's MARR is
15%. The service life of the project is 6 years. The machine center is depreciated using MACRS-7 and
the marginal tax rate is 25%.
Estimates for the other relevant parameters are as follows:
Min
Most Likely
Max
Initial investment
$90,000
$100,000
$110,000
Demand
6,000
10,000
12,000
Unit Price
$80
$120
$150
Annual Fixed Cost
$350,000
$500,000
$600,000
Annual Savings
$15,000
$25,000
$30,000
Variable cost / unit
$45
$75
$90
Salvage Value
$0
$20,000
$35,000
a) Determine the NPV for the most likely case
b) Repeat the solution for the Best-case scenario
c) Repeat the solution for the Worst-case scenario
(10)
(5)
(5)