We are evaluating a project that costs $750,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 159,000 units per year. Price per unit is $41, variable cost per unit is $28, and fixed costs are $753,000 per year. The tax rat
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Sensitivity Analysis NPV Question
A project has an initial investment of $200.00. You have come up with the following estimates of the projects with cash flows.
Pessimistic NPV Most Likely Optimistic
Revenues 30 40 50
Costs -20 -16 -10
If the cash flows are perpetuities and t
Consider the following statement by a project analyst: "I analyzed my project using scenarios for the base case, best case, and worst case. I computed break-evens and degrees of operating leverage. I did sensitivity analysis and simulation analysis. I computed NPV, IRR, payback, AAR, and PI. In the end, I have over a hundred dif
You are considering a new product launch. The project will cost $1,550,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 150 units per year; price per unit will be $19,000, variable cost per unit will be $11,000, and fixed costs will be $460,000 per year. The req
Discuss differences and similarities between sensitivity analysis and scenario analysis. Which method would you use if the purpose of analysis is to identify one or two key variables that have largest impact on the estimated NPV of a small project under consideration?
Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in mil
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Sensitivity Analysis is an analysis of a change in NPV when a key input variable is changed and all other variables stay the same.
Key variables can change a NPV (return) of a project. The graphing of this data indicates the degree of risk of each variable to the analysis.
Take the information an
The Clayton Manufacturing Company is considering an investment in a new automated inventory system for its warehouse that will provide cash savings to the firm over the next five years. The firm's CFO anticipates additional earnings before interest, taxes, depreciation, and amortization (EBITDA) from cost savings equal to $200,
I have a problem that I cannot completely finish. Please help me to answer part C & D.
Maxine Peru, CEO or Peru Resources just received the engineering report. The report described a proposed new mine on the North Ridge of Mt. Zircon. A vein of transcendental zirconium ore had been discovered there on land owned by Ms. Per