1a. Scenario Analysis

Stinnett Transmissions, Incorporated, has the following estimates for its new gear assembly project:

Price = $1,220 per unit;

variable costs = $380 per unit;

fixed costs = $3.75 million;

quantity = 90,000 units.

Suppose the company believes all of its estimates are accurate only to within 15 percent. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario?

1b. Sensitivity Analysis

For the company in the previous problem, suppose management is not concerned about the impact of its price estimate on the project's profitability. How could you address this concern for Stinnett Transmissions? Describe how you would calculate you answer. What values would you use for the other forecast variable?