Question: Can you please explain how the calculation for Demand, Unit Price and Salvage Value on the Sensitivity Analysis chart? Windsor Metal Company (WMC), a small

Can you please explain how the calculation for Demand, Unit Price and Salvage Value on the Sensitivity Analysis chart?

Can you please explain how the calculation for Demand, Unit Price and

Windsor Metal Company (WMC), a small manufacturer of fabricated After-tax Cash Flow and NPW metal parts, must decide whether to enter the competition to become Items 0 3 4 5 the supplier of transmission housings for Gulf Electric, a company that Cash Inflow produces the housings in its own in-house manufacturing facility but Revenue 0.6XY 0.6XY 0.6XY .6XY 0.6XY 0.6XY has almost reached its maximum production capacity. Therefore, Gulf is CCA Credit 0.4CCA 7500 12750 92! 6247.5 4373.25 looking for an outside supplier. To compete, WMC must design a new Net Salvage 0.6S+0.4UCC 0.6S+10204.25 fixture for the production process and purchase a new forge. The Cash Outflow available details for this purchase are on the following slide. Investment -125000 Financial Facts: Variable Cost -0.6X*VC .9X 9X -9X -9X -9X Known with Great Confidence Fixed Cost -0.6*10000 6000 Required investment = $125,000 6000 6000 6000 6000 Project Life = 5 years NPW -125000 0.6X(Y-15)+1500 0.6X(Y-15)+6750 0.6X(Y-15)+2925 0.6X(Y-15)+247.5 0.6X(Y-15)+0.6S+8577.5 Income tax rate = 40% PW 112263+2.0113X(Y-15)+0.2983S MARR = 15% Unknown but Predictable (Most Likely Values) Sensitivity Analysis Unit variable cost = $15 per unit Deviation -20% 10% 0 10% 20% Number of units = 2,000 units Demand 12301.8 26380.9 10460 54539.1 68618.2 Unit Price = $50 per unit Unit Price 234 20347 40460 60573 0686 Salvage value = $40,000 Salvage 38073.6 39266.8 40460 41653.2 42846.4 Fixed cost = $10,000/Yr Break-even Analysis Demand PW 0 -100331 200 -86251.9 400 72172.8 600 -58093.7 800 -44014.6 1000 -29935.5 1200 15856.4 1400 1777.3 1600 12301.8 1800 26380.9 2000 40460 200 54539.1 2400 68618.2 Scenario Analysis Variables Best Most Likely Worst Demand 2400 2000 1600 Unit Price 53 50 48 Salvage 50000 40000 30000 NPW 86082.56

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