TConsider a project to supply Honda with 25,000 tons of machine screws annually for its automobile production. You will need an initial $3,600,000 investment in threading equipment to get the project started. The project will last for five years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $185 per ton. The firm’s policy is to depreciate fixed assets using the straight-line method to zero over its useful life. They estimate a salvage value of $500,000 after dismantling costs. The marketing department estimates that Honda will agree to a selling price of $280 per ton. The engineering department estimates you will need an initial net working capital investment of $360,000, which will remain constant throughout the project and will be fully recovered at the end of the project. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent. In addition, 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. 
 The discount rate is 12% and the marginal tax rate is 17%. Apply scenario analysis and: (a) Calculate the NPV for this project under the base-case scenario. (10 marks) (b) Calculate the NPV for this project under the best-case scenario. (10 marks) (c) Calculate the NPV of this project under the worst-case scenario. (10 marks) (d) Describe two (2) other techniques that can be performed to assess the risk of this project. (6 marks) FIN309 Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 5 Question 2 Ritewell Publishers Pte Ltd spends considerable time and resources in long-term planning. In order to manage its short-term planning, it prepares a cash budget periodically. You have been furnished with the extract of Ritewell’s 2015 budget for the next three months: Consider a project to supply Honda with 25,000 tons of machine screws annually for its automobile production. You will need an initial $3,600,000 investment in threading equipment to get the project started. The project will last for five years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $185 per ton. The firm’s policy is to depreciate fixed assets using the straight-line method to zero over its useful life. They estimate a salvage value of $500,000 after dismantling costs. The marketing department estimates that Honda will agree to a selling price of $280 per ton. The engineering department estimates you will need an initial net working capital investment of $360,000, which will remain constant throughout the project and will be fully recovered at the end of the project. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent. In addition, 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. 
 The discount rate is 12% and the marginal tax rate is 17%. Apply scenario analysis and: (a) Calculate the NPV for this project under the base-case scenario. (10 marks) (b) Calculate the NPV for this project under the best-case scenario. (10 marks) (c) Calculate the NPV of this project under the worst-case scenario. (10 marks) (d) Describe two (2) other techniques that can be performed to assess the risk of this project. (6 marks) FIN309 Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 5 Question 2 Ritewell Publishers Pte Ltd spends considerable time and resources in long-term planning. In order to manage its short-term planning, it prepares a cash budget periodically. You have been furnished with the extract of Ritewell’s 2015 budget for the next three months: Consider a project to supply Honda with 25,000 tons of machine screws annually for its automobile production. You will need an initial $3,600,000 investment in threading equipment to get the project started. The project will last for five years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $185 per ton. The firm’s policy is to depreciate fixed assets using the straight-line method to zero over its useful life. They estimate a salvage value of $500,000 after dismantling costs. The marketing department estimates that Honda will agree to a selling price of $280 per ton. The engineering department estimates you will need an initial net working capital investment of $360,000, which will remain constant throughout the project and will be fully recovered at the end of the project. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent. In addition, 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. 
 The discount rate is 12% and the marginal tax rate is 17%. Apply scenario analysis and: (a) Calculate the NPV for this project under the base-case scenario. (10 marks) (b) Calculate the NPV for this project under the best-case scenario. (10 marks) (c) Calculate the NPV of this project under the worst-case scenario. (10 marks) (d) Describe two (2) other techniques that can be performed to assess the risk of this project. (6 marks) FIN309 Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 5 Question 2 Ritewell Publishers Pte Ltd spends considerable time and resources in long-term planning. In order to manage its short-term planning, it prepares a cash budget periodically. You have been furnished with the extract of Ritewell’s 2015 budget for the next three months: