Stinnett Transmissions, Incorporated, has the following estimates for its new gear assembly project: Price = $ 1,250 per unit; variable cost = $470 per unit; fixed costs = $4.98 million; quantity = 88,000 units. Suppose the company believes all of its estimates are accurate only to within \pm 21 percent. What values should the company use for the four variables given here when it performs its best-case and worst-case scenario analysis? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234, 567.
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- Jeweled Outlook is analyzing a proposed project with expected sales of 9,200 units, ±4 percent. The expected variable cost per unit is $26 and the expected fixed costs are $49,000. Cost estimates are considered accurate within a range of ±5 percent. The depreciation expense is $18,300. The sale price is estimated at $52 a unit, ±3 percent. If the company conducts a sensitivity analysis using a variable cost of $27, what will be the total variable cost estimate?Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome Recession ($40 million) (24 million) 12 million 18 million Boom 0.05 34 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. Below average Average Above average E(NPV): ONPV: CV: million million 0.05 0.20 0.50 NPV 0.20Your boss wants you to conduct a sensitivity and scenario analysis to determine whether the following project is a winner. You are entering an established market, and you know the market size will be 1,100,000 units. You are unsure of your exact market share, the price you will be able to charge, and your variable cost per unit, but have determined a range of possible values for each (in the table below). Your initial investment cost is $150 million, and that investment will depreciate in straight-line form over the 20-year life of the project. There are no new NWC requirements, and there will be no salvage value at the end of the 20 years. The tax rate is 35%. The discount rate is 18%. a) Use the following table to conduct a full sensitivity analysis for the project. Make sure to include the NPV for the expected outcome as part of the full sensitivity analysis. Also add the best- and worst-case scenarios to the full sensitivity analysis. Show all of your work (written out, not an…
- 1. What is sensitivity analysis? 2. Perform a sensitvity analysis on the unit sales, salvage value, and WACC for a project. Assume that each of these variables deviates from its base-case, or expected value by plus or minus 10%, 20%, and 30%.The base case value for unit sales is 150,000. Calculate NPV for each case (18 NPV in total), then draw a graph with three lines (one for unit sales, one for salvage value, and one for WACC). At the end, perform a sensitivity analysis for the project (what you have seen, what conclusions you can make?). 3. What is the primary weakness of sensitvity analysis? What are its primary advantages?8. Modified Internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 -200,000 425,000 475,000The Siler Construction Company is about to bid on a new industrial construction project. To formulate their bid, the company needs to estimate the time required for the project. Based on past experience, management expects that the project will require at least 24 months, and could take as long as 48 months if there are complications. The most likely scenario is that the project will require 30 months. a. Assume that the actual time for the project can be approximated using a triangular probability distribution. What is the probability that the project will take less than 30 months? b. What is the probability that the project will take between 28 and 32 months? c. To submit a competitive bid, the company believes that if the project takes more than 36 months, then the company will lose money on the project. Management does not want to bid on the project if there is greater than a 25% chance that they will lose money on this project. Should the company bid on this project?
- Chadron Motors is reviewing a project with sales of 6,200 units, ±2 percent, at a sales price of $29, ±1 percent, per unit. The expected variable cost per unit is $11, ±3 percent, and the expected fixed costs are $85,578, ±1 percent. The depreciation expense is $68,000 and the tax rate is 21 percent. What is the net income under the worst-case scenario? A. $4,696 B. –$28,704 C. $15,846 D. −$39,713 E. −$38,578A company is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 15,000 units, \pm 5 percent. The expected variable cost per unit is $8 and the expected fixed costs are $ 40,000. The fixed and variable cost estimates are considered accurate within a \pm 7 percent range. The sales price is estimated at $15 a unit, \pm 6 percent. The project requires an initial investment of $120,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $30,000 at the end of the project. The project requires $12,000 in net working capital for the three years but will be fully recovered when the project closes. The discount rate is 12.8 percent and tax rate is 20 percent. What is the net present value for the optimistic scenario? $92,058.28 $94, 075.71 $ 96,093.14 $98,110.57 $100, 128.00Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is a.between 18% and 20%. b.between 16% and 17%. c.under 15%. d.None of these choices are correct.
- Coore Manufacturing has the following two possible projects. The required return is 10 percent. Project Y -$ 27,900 13,900 Project Z -$ 59,000 17,500 12,300 30,000 14,700 10,300 Year 0 1 2 3 4 15,500 28,000 a. What is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 3- b. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 3. c. Which, if either, of the projects should the company accept? a. Project Y Project Z b. Project Y Project Z c. Accept projectThe most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: 50 24 30 $370,000 36,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.4 million, which will be depreclated straight-line over the project life to a final value of zero. The firm's tax rate is 21% and the required rate of return is 14%. (For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project NPV in the worst-case scenario?Texas Instruments is concerned that the estimated future operating costs of its soon-to-be-purchased equipment may not be very accurate. Let's say, the fixed production costs end up being 15% higher than what the company's research team has estimated, and the variable production costs will on the other hand be 8% lower. Clearly, this will affect the valuation of the project. But to which extent?? To see the extent of the effect on the project's current value, one should perform calculations known as analysis. Multiple Choice break-even scenario O sensitivity O equivalent cost homemade