The management team for Beach Park Resort is leaning toward choosing Location B. The estimated cash...

 

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The management team for Beach Park Resort is leaning toward choosing Location B. The estimated cash flows based on the information availablenow are as follows: Description Initial Cost Annual Operating & Maintenance Costs Annual Benefits Salvage Value Project Life Location B $64,000,000 $6,700,000/xx. $7,000,000/xx $6,500,000 10 years The company uses a MARR of 10%. Do a sensitivity analysis to find the most sensitive variable by following these steps: a) [4pt] Calculate the PW of this base case. b) [6pt] Calculate the PW by varying the annual benefits +10%. c) [6pt] Calculate the PW by varying the salvage value ±15%. d) [4pt] Prepare a sensitivity graph to show the change in PW based on the variation in these two variables. e) [2pt] Identify which variable is more important and needs more precise estimation. The management team for Beach Park Resort is leaning toward choosing Location B. The estimated cash flows based on the information availablenow are as follows: Description Initial Cost Annual Operating & Maintenance Costs Annual Benefits Salvage Value Project Life Location B $64,000,000 $6,700,000/xx. $7,000,000/xx $6,500,000 10 years The company uses a MARR of 10%. Do a sensitivity analysis to find the most sensitive variable by following these steps: a) [4pt] Calculate the PW of this base case. b) [6pt] Calculate the PW by varying the annual benefits +10%. c) [6pt] Calculate the PW by varying the salvage value ±15%. d) [4pt] Prepare a sensitivity graph to show the change in PW based on the variation in these two variables. e) [2pt] Identify which variable is more important and needs more precise estimation.

Answer rating: 100% (QA)

Answer a PW of cash flow Year Cashflow PVF10 PV 0 64000000 1 64000000 1 300000 09091 272727 2 300000 ... View the full answer