Question $3(1$ point$)$

D Listen

A firm conducts a sensitivity analysis for NPV with respect to the following inputs:

Price, Units sold, WACC, Equipment cost, Non$-$variable costs, and variable costs per

unit. The results are given in the following graph. What three variables should

management put the most effort in order to develop accurate forecasts? Assume the

project is a new project.

NPV

$($$$)$

$$6,000$

$$4,000$

Price

$$2,000$

Units

NPV

$($$$)$

$$6,000$

$$4,000$

Price

$$2,000$

Units

$$0$

WACC

Equipment

Non$-$VC

$-$$$2,000$

VC$/$Unit

$-$$$4,000$

$-$$$4,000$

$-$$$6,000$

$45\%-30\%$

$-15\%$

$0\%$

$15\%$

$30\%$

$45\%$

$\%$ Deviation from Base

Price

Units sold $($Units$)$

WACC

Equipment cost $($Equipment$)$

Non$-$variable costs $($Non$-$VC$)$

variable costs per unit $($VC$/$unit$)$