5.6. The PM from problem 5.5 proposed an alternative track. To make the calculation easier, the PM assumed no tax and no depreciation consequences.

Scenario A: Buy the line for $500,000. Marketing thinks it can sell 12 units per year at a profit of

$10,000/unit for five years.

Scenario B: Develop the line in-house at $300,000. Marketing thinks it can sell 12 units per year at a profit of $5000/unit for five years.

1. Show the breakeven point in yearly sales between the two scenarios

(buy or make in-house), using an i = 7%b. Plot a simple graph to show your result 2. For Scenario B, develop the line in-house at 300,000. Marketing thinks it can sell 12 units per year at a profit of $5000/unit for five years. Assume i = 7%.

3. Perform sensitivity analysis for scenario B if the in-house project cost estimate ($300,000) varies by ± 20%, Marketing thinks it can sell 12 units per year at a profit of $5000/unit for five years. 4. Perform probability analysis if the probabilities of the project cost were as follows: Marketing thinks it can sell 12 units per year at a profit of $5000/unit for five years.

P($200,000) 30%; P($300,000) = 40%; P($400,000) = 30%