Sensitivity analysis
Not what you're looking for?
The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment cost $9 million (the existing equipment has zero salvage value). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $8 a welt to $4. However, as the following table shows, there is some uncertainty both about future sales and about the performance of the new machinery:
Pessimistic Expected Optimistic
Sales, millions of welts .4 .5 .7
Manufacturing cost of the new machinery, $ per welt 6 4 3
Economic life of new machinery, years 7 10 13
Conduct a sensitivity analysis of the replacement decision, assuming a discount rate of 12%. Rustic Welt does not pay taxes.
Purchase this Solution
Solution Summary
The solution is very easy to understand and concise. It is an excellent response for students who want to understand the concepts and then use the same concepts to solve similar problems in the future. Overall, an excellent response. The solution provides the necessary steps which are easy to follow.
Solution Preview
Hello,
I hope you are doing well. Please see my response attached in the excel file. I have done my best to answer ...
Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.