4. Perform sensitivity analyses on sales volume, price, direct labor, materials and energy cost. What do you
Question:
4. Perform sensitivity analyses on sales volume, price, direct labor, materials and energy cost. What do you observe?
a. Scenario 1: Perform a capital budgeting analysis with the information provided in the case.
b. Scenario 2: You have been advised by the consultants that the energy costs, the labor costs and the material costs are likely to rise by 5% a year, starting in Year 2. The consultants do not think that you can pass the extra cost through. What do you observe?
c. Scenario 3: You have been advised by the consultants that the energy costs, the labor costs and the material costs are likely to rise by 5% a year, starting in Year 2. The consultants think that you can pass part of the extra cost through. You should be able to increase the price per unit by 5%, but the volume would decrease by 2%. What do you observe?