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4. Project Analysis [25 Marks] 1} State whether the following statements are true or false and provide a brief explanation. [8 Marks] a} One drawback of sensitivity analysis is that it provides ambiguous results. b} Tornado diagram is a graphical technique that is often used to display the results of a scenario analysis. c} In constructing a Monte Carlo simulation model of an investment project, one typically ignores possible interdependencies between variables. d} Financial managers use decision trees to analyse projects involving sequential decisions. 2} As a shareholder of a rm that is contemplating a new project, would you he more concemed with the accounting break-even point or the NPV break-even point? Explain why. [6 Marks] 3} A project has fixed costs of $3 50 per year, depreciation charges of $250 a year, annual revenue of $3,000, and annual variable costs equal to two-thirds of revenues. Calculate the degree of operating leverage (DOL) of this project. If sales decrease by 5%, what will be the percentage change in pre-tax prots? [5 Marks] 4} Assume that a country has just liberalised its markets and is now pemtitting foreign investors. Tesla Manufacturing has analysed starting a project in the country and has detemtined that the project has a negative N'PV. Why might the company go ahead with the project? What type of real option is most likely to add value to this project? Explain your answer. [6 Marks]