1. Southern Goods is analyzing a proposed project using standard sensitivity analysis. The company expects to sell 4,500 units, which may increase or decrease by 11 percent under optimistic or pessimistic economic conditions, respectively. The expected variable cost per unit is $13 and the expected fixed costs are $12,000. Cost estimates are considered accurate within a 5 percent range. The depreciation expense is $5,000. The sale price is estimated at $22 a unit, 2 percent. What is the sales revenue under the pessimistic case scenario?

2. William's Co. is considering spending $15,000 at Time 0 to test a new product. Depending on the test results, the firm may decide to spend $58,000 at Time 1 to start production of the product. If the product is introduced and it is successful, it will produce aftertax cash flows of $45,000 a year for Years 2 through 4. The probability of successful test and investment is 62 percent. What is the net present value at Time 0 given a 14 percent discount rate?

3. You are considering a project that has been assigned a discount rate of 8 percent. If you start the project today, you will incur an initial cost of $480 and will receive cash inflows of $350 a year for three years. If you wait one year to start the project, the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years. What is the value of the option to wait?