$"12-14$ Allied Food Products Capital Budgeting and Cash Flow Estimation Allied Food Products is considering expanding into the

fruit juice business with a new fresh lemon juice product.Assume that you were recently hired as assistant to the director of capital

budgeting, and you must evaluate the new project. The lemon juice would be produced in an unused building adjacent to Allied's

Fort Myers plant; Allied owns the building, which is fully depreciated. The required equipment would cost$$200,000,$ plus an

additional $$40,000$ for shipping and installation. In addition, inventories would rise by $$25,000,$ while accounts payable would

increase by $$5,000.$ All of these costs would be incurred at $t=0.$ By a special ruling, the machinery could be depreciated under

the MACRS system as $3-$ year property. The applicable depreciation rates are $33\%,45\%,15\%,$ and $7\%.$ The project is

expected to operate for $4$ years, at which time it will be terminated. The cash inflows are assumed to begin $1$ year after the project

is undertaken, or at $t=1,$ and to continue out to $t=4.$ At the end of the project's life $(t=4),$ the equipment is expected to

have a salvage value of $$25,000.$ Unit sales are expected to total $100,000$ units per year, and the expected sales price is $$2\mathrm{.}00$ per

unit. Cash operating costs for the project $($total operating costs less depreciation$)$ are expected to total $60\%$ of dollar sales. Allied's

tax rate is $40\%,$ and its WACC is $10\%.$ Tentatively, the lemon juice project is assumed to be of equal risk to Allied's other assets.

You have been asked to evaluate the project and to make a recommendation as to whether it should be accepted or rejected. To

guide you in your analysis, your boss gave you the following set of questions." Could you please find the answer for question

$"$F$"$ in this case: $"1.$ What is sensitivity analysis? $2.$ How would you perform a sensitivity analysis on the unit sales, salvage

value, and WACC for the project? Assume that each of these variables deviates from its base $-$ case, or expected, value by plus or

minus $10\%,20\%,$ and $30\%.$ Explain how you would calculate the NPV$,$ IRR, MIRR, and payback for each case. $3.$ What is the

primary weakness of sensitivity analysis? What are its primary advantages?