Consider the following investment opportunity: Capital Investment (End of Year 0) Expenses (per year) Revenues (per year) $350,000 $35,000 $80,000 $150,000 20 years Market value (End of Year 20) Study Period (years) MARR (per year) 10% 10% Interest Table A. Use your favorite method (PW, FW, AW, or IRR - ONLY CHOOSE ONE) to make a recommendation about the profitability of this project. B. Investigate sensitivity to decision reversal for the estimate of annual expenses. Express your answer as a percent change from the original estimate of $35,00 year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate. C. Investigate sensitivity to decision reversal for the estimate of capital investment. Express your answer as a percent change from the original estimate of $350 per year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate. D. Based on your results from parts b and c, identify which factor the decision is more sensitive to (annual expenses or capital investment) and explain why.
Consider the following investment opportunity: Capital Investment (End of Year 0) Expenses (per year) Revenues (per year) $350,000 $35,000 $80,000 $150,000 20 years Market value (End of Year 20) Study Period (years) MARR (per year) 10% 10% Interest Table A. Use your favorite method (PW, FW, AW, or IRR - ONLY CHOOSE ONE) to make a recommendation about the profitability of this project. B. Investigate sensitivity to decision reversal for the estimate of annual expenses. Express your answer as a percent change from the original estimate of $35,00 year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate. C. Investigate sensitivity to decision reversal for the estimate of capital investment. Express your answer as a percent change from the original estimate of $350 per year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate. D. Based on your results from parts b and c, identify which factor the decision is more sensitive to (annual expenses or capital investment) and explain why.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Consider the following investment opportunity:
Capital Investment (End of Year 0)
Expenses (per year)
Revenues (per year)
Market value (End of Year 20)
Study Period (years)
MARR (per year)
$350,000
$35,000
$80,000
$150,000
20 years
10%
10% Interest Table ,
A. Use your favorite method (PW, FW, AW, or IRR - ONLY CHOOSE ONE) to make a recommendation about the profitability of this project.
B. Investigate sensitivity to decision reversal for the estimate of annual expenses. Express your answer as a percent change from the original estimate of $35,000 per
year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate.
C. Investigate sensitivity to decision reversal for the estimate of capital investment. Express your answer as a percent change from the original estimate of $350,000
per year. It is important to indicate whether the change you report is an increase (+) or decrease (-) from the original estimate.
D. Based on your results from parts b and c, identify which factor the decision is more sensitive to (annual expenses or capital investment) and explain why.
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