You are considering buying a corner snow cone business for $100,000. As a conservative business person, you
Question:
You are considering buying a corner snow cone business for $100,000. As a conservative business person, you assume zero salvage value at the end of the project. You assume annual sales of 12,000 snow cones per year. The price of a snow cone in year 1 is $5.00/ea. (You make exceptionally good snow cones!!!) Operating costs are estimated to be $8,000/yr.
The project evaluation life is 3 years, and the minimum rate of return is 15%.
(a) Conduct a single-variable sensitivity analysis of the project, looking specifically at the net present value and rate of return. Assume there is potential variation in the capital cost of 15%. Depending on the weather, your annual sales may vary by as much as 10% and operating costs as much as 7%.
(b) Summarize your results using tornado charts.
(c) What is the best and worst case?rn
Macroeconomics Principles and Applications
ISBN: 978-1133265238
5th edition
Authors: Robert e. hall, marc Lieberman