Question: (1) What is sensitivity analysis? (2) Perform a sensitivity analysis on the unit sales, salvage value, and cost of capital for the project. Assume each

(1) What is sensitivity analysis?
(2) Perform a sensitivity analysis on the unit sales, salvage value, and cost of capital for the project. Assume each of these variables can vary from its base-case, or expected, value by ±10%, ±20%, and ±30%. Include a sensitivity diagram, and discuss the results.
(3) What is the primary weakness of sensitivity analysis? What is its primary usefulness?

Step by Step Solution

★★★★★

3.55 Rating (172 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 Sens itivity analysis is a method of analyzing how changes in the inputs of a model affect the out... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Corporate Finance Core Principles Questions!

Perform a vertical analysis on the followinginformation. 2015 2014 $1,050,000 300,000 925,000 2,725,000 $ 420,000 Cash Accounts receivable Inventory Long-term assets 660,000 1,020,000 3,900,000 Total...

Perform a x2 test on the following data: a. Regulation is the best way to ensure safe products. b. Ownership ofresidence No 20 14 Male 25 16

How would you perform a sensitivity analysis on the unit sales, salvage value , and WACC for the project? Assume that each of these variables deviates from its base-case, or expected, value by plus...

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line...

MINI CASE Shriv as Company is considering adding a new line product Capital budgeting analysis is being conducted by Sidney Johnson, recently graduated MBA The production line would be set up in...

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line...

Jangs Casting Company is considering adding a new line to its product mix. The production line would be set up in unused space in Jangss main plant. The machinerys invoice price would be...

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line...

Capital Budgeting Gilroys Casting Company, which has historically specialized in aluminum casting is considering adding a new bronze casting line to its production facility. Over the past several...

You are given the following cumulative incurred losses by development year: Accident Year DY0 DY1 DY2 DY3 3 2,100 2,520 3,780 4,347 4 2,700 3,240 4,860 5,589 5 3,300 3,960 5,940 6 3,700 4,440 7 4,000...

Suppose you read a story that claims the national unemployment rate for a country is 28.7%. On what type of data source is the claim in this story based? Choose the correct answer below. OA. These...

What was the balance in Work in Process Inventory on January 1 if this was the only unfinished job? A job order cost sheet for Ryan Company is shown below. Job No. 92 For 2,000 Units Direct Direct...

3. What are the major types of knowledge work systems and how do they provide value for firms?

Redo Problem 21 using sales growth rates of 15 and 25 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the...

Redo Problem 23 using sales growth rates of 30 and 35 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the...

a. What is the duration of a zero-coupon bond that has ten years to maturity? b. What is the duration if the maturity increases to 11 years? c. What is the duration if the maturity increases to 12...

Highpark Industrial has 100,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 7.5%. The company also has 1 million shares of preferred stock...

When we combine stocks in a portfolio, the amount of risk that is eliminated depends on the degree to which the stocks are correlated with one another. True False Crane Sporting Goods expects to have...