Question: Your team has identified several key aspects for the project. The following table shows the base-case assumptions, together with the best case and worst

Your team has identified several key aspects for the project. The following table shows the base-case assumptions, together with the best case and worst case. Parameter Worst Case First-year sales (as a percentage of the total revenues in the latest reporting period) Revenue growth rate Project's EBITDA/Sales profit margin Net Working Capital Beta Initial Assumption 7% 15% for the second year, 10% for the third, and 5% annually for the final two years Similar to existing projects $25,000,000 The estimated beta 4% Constant after the first year at a rate of 0% +5% to the initial assumption $35,000,000 The upper bound of 95% confidence interval Best case 10% Constant after the first year at a rate of 15% -5% to the initial assumption $15,000,000 The lower bound of the 95% confidence interval (a) Perform break-even analysis with respect to the first-year sales parameter. (b) Perform sensitivity analysis for each parameter. Evaluate which parameter is the most important to the project.
Step by Step Solution
3.39 Rating (161 Votes )
There are 3 Steps involved in it
a Performing breakeven analysis with respect to the firstyear sales parameter To perform a breakeven analysis we need to determine the number of units that must be sold to cover the initial investment ... View full answer
Get step-by-step solutions from verified subject matter experts
