A plant expansion project's 15-year NPV (12%) is $4.4 million. The project will allows the company to produce and sell more widgets.
A plant expansion project's 15 - year NPV ( 12% ) is $4 .4 million The Proclivity analysis of with company to produce and sell more widgets . Your subordinate did a senshe will obtain ploy assessing three variables ( 1 ) The EBITDA margin the company will obtain for selling the widgets . TalentINThat 5% of sales A ranks of 2% 28 % was examined ( 2 ) The sales price of the widget the firm is currently selling the sprice Midget to its customer as $1 30 each A range from $ 9 20 to $1 35 was examined in the in to analysis . ( 3 ) . The third variable was how fast the plant could ramp up capacity after the production improvements were installed In all three cases the new plant capacity will end up being 125% of its current capacity In the " slow " scenario the ramp - up to that rate is lower than the base case In the " fast scenario , the production ramp - up to that ultimate rate is faster than the base case After the sensitivity analysis is complete , your subordinate gives you the following tornado st risk thi liagram ( see next page ) . According to this analysis , what is the largest risk this projec faces ? Explain why that is the case . If the company 's project hurdle - rate is 12% , should this project move forward ? Explain why or why not Who 15 Year Project SPY (1206 ) Sensitivity Anal EBITDA SURE 2023% But SHE Sales priceoften ($1 20-21 35 . take = $150 but rep up the show . fox bou = jee notes 1027 520 350 DO 95 0 100 1353 1 1050 Project NPT 21 2 . of the Base CaseTypically: a tornado diagram is " common sized " by dividing all the values by the value of the base case ( in this problem that would be dividing all the calculated NPV's by $4 .4 million ) . The diagram below shows the identical tornado diagram NOT common - sized ( actual S values show ) 5 - Year Project APV ( 12% ) Sensitivity Analysis EBITDA margin ( 27 28 . Base - 250 ) 3.72 Sales price of item ( 51 20 - 51.35 : base - $1 301 lant ramp- up rate ( slow - fast base * see notes ) Project 15 - year NPV ( 12 % ) in Milions of USD
