Stinnett Transmissions, Incorporated, has the following estimates for its new gear assembly project: Price = $1,170 per unit; variable cost $390 per unit; fixed costs $4.90 million; quantity = 80,000 units. Suppose the company believes all of its estimates are = = accurate only to within ±15 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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- Huang Industries is considering a proposed project whose estimatedNPV 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 ascenario analysis and obtained these results: Calculate the project’s expected NPV, standard deviation, and coefficient of variation.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?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
- Appalachian Crafts is analyzing a project with expected sales of 18,900 units, ±2 percent. The expected variable cost per unit is $23 and the expected fixed costs are $52,000. Cost estimates are considered accurate within a range of ±1 percent. The depreciation expense is $18,400. The sale price is estimated at $54 a unit, ±2 percent. What is the total dollar difference between the revenue using the optimistic sale price versus the expected sale price?Assume a project has three variables: life, first cost, and annual cost. Assume there is no salvage value. For each variable there are three possible values as listed below. The firm uses an interest rate of 8 percent to evaluate engineering projects. For each variable, determine which value is "optimistic" and which is "pessimistic". The remaining value is "most likely". Compute each variable's estimated mean (using the "optimistic/most likely/pessimistic" formula) and using those computed mean values, compute the project's expected present value cost. First cost: -$480,000, -$620,000, -$860,000 Annual cost: -$75,000, -$85,000, -$110,000 Life: 8 years, 10 years, 24 years What is Expected Net Present Worth?Your 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…
- 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 0.20Waste Management Inc. is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price will increase with inflation. Fixed costs will also be constant, but variable costs will rise with inflation. The project should last for 3 years, and there will be no salvage value. This is just one project for the firm, so any losses can be used to offset gains on other firm projects. What is the project's expected NPV? IRR? Would you accept this project? WACC 9.50% Net investment cost (depreciable basis) $100,000 Units sold 40,000 Average price per unit, Year 1 $25.00 Fixed op. cost excl. depr'n (constant) $150,000 Variable op. cost/unit, Year 1 $20.20 Annual depreciation rate 33.33% Expected inflation 5.00% Tax rate 40.0% Please show work.Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects? Project B, which has below-average risk and an IRR = 8.5%. All of these projects should be accepted as they will produce a positive NPV. Without information about the projects’ NPVs we cannot determine which one or ones should be accepted. Project C, which has above-average risk and an IRR = 11%. Project A, which has average risk and an IRR = 9%. (I want see step to step to get the answer Project B, which has below-average risk and an IRR = 8.5%.
- How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?The 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?