Sensitivity Analysis.

Use the data and after-tax cash flows from Exercise 7.1 and the results of 7.2.

Required:

1. Compute the annual variation in the unit sales forecast that would make this a break-even NPV product. Hint: Use Excel’s Solver.

2. If the forecast of unit sales might vary plus or minus 20%, is this investment analysis sensitive to the sales forecast? Is this a risky project? Explain.

3. What unit sales variation from the base forecast (C28) will result in a favourable NPV and a payback period of 2.0 years? Hint: Use Excel’s Solver.