1. Calculate the NPV of each alternative based on originally projected costs and savings.

2. Conduct quantitative sensitivity analysis based on the ranges of possible cost estimates and savings.

3. Assess the qualitative risks and rewards of proceeding with this project, and each alternative.

As a financial analyst at the Lunchbox Music Studio, you have been asked to evaluate two capital investment alternatives. The company policy has set the cost of capital at 15% for all proposed projects. Lunchbox's usual corporate tax rate is 35%. The proposed capital project calls for developing new computer software to facilitate partially automating the sound engineering for recording. Alternative A has initial software development costs projected at $194,000, while Alternative B would cost $336,000. Software development costs would be capitalized and qualify for a capital cost allowance (CCA) rate of 30%. In addition, IT would hire a software consultant under either alternative to assist in making the decision whether to invest in the project for a fee of $17,000 and this cost would be expensed when it is incurred. To recover its costs, Lunchbox's IT department would charge the production department for the use of computer time at the rate of $394 per hour and estimates that it would take 182 hours of computer time per year to run the new software under alternative. Lunchbox owns all its computers and does not currently operate them at capacity. The IT plan calls for this excess capacity to continue in the future. For security reasons, it is company policy not to rent excess computing capacity to outside users. If the new partial automation of sound engineering is put in place, expected savings in production cost (before tax) are projected as follows: The CFO is concerned that the analysis to date has not really addressed the risk in this project. Your task is to employ scenario and sensitivity analysis to explore how a calculated recommendation might change when subjected to a number of "what-ifs". In discussions with CFO, they are confident the initial costs can be kept in a range of + or - 15% of the original estimates. Savings in production costs are less certain because the software will involve new technology that has not been implemented before. An appropriate range of these costs is + or 40% of the original estimates. Required: 1. Calculate the NPV of each alternative based on originally projected costs and savings. 2. Conduct quantitative sensitivity analysis based on the ranges of possible cost estimates and savings. 3. Assess the qualitative risks and rewards of proceeding with this project, and each alternative