Question: Consider the NPV sensitivity analysis reported in the following table (the numbers in the body of the table are dollars). Deviation Cover sales Price Operating

Consider the NPV sensitivity analysis reported in the following table (the numbers in the body of the table are dollars).

Deviation

Cover sales

Price

Operating cost

Discount rate

+20%

-108,680

-70,765

-180,678

-150,987

+10%

-122,783

-98,498

-160,094

-145,876

Base case

-150,929

-150,929

-150,929

-150,929

-10%

-164,890

-189,756

-125,098

-138,743

-20%

-189,428

-200,690

-115,867

-133,987

Range

80,748

129,925

64,811

17,000

A) Which variable is the most risky for the project? Explain why.

B) Which variable is the least risky for the project? Explain why.

C) If you were told that the probability of any deviation in the risky event you identified in a) was 0.001%, how would that affect the answer you gave in a)?

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