The managers of a company are considering an investment with the following estimated cash flows. MARR is 18% per year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows and the useful life are approximate values. The capital investment is known to be within ± 4%. Annual expenses are known to be within ±12%. The annual revenue, market value, and useful life estimates are known to be within ±20%. a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation regarding whether or not they should proceed with this project. Graph your results for presentation to management. b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest need). Click the icon to view the interest and annuity table for discrete compounding when the MARR is 18% per year. a. Calculate the PW value for the initial amounts. PW(18%) = (Round to the nearest hundreds.) Capital investment $28,000 Annual revenues $19,000 Annual expenses $5,500 $500 Market value Useful life 15 years

There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed in the attached table. If the tenants have the right to be free of loud music enforced through a property rule, how many bands will play in Rock‐n‐Roll Bar on a Saturday night? A. Zero B. One C. Two D. Three E. It depends on transaction costs

why choose A?

B9