Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Conduct a sensitivity analysis for revenues by increasing revenues by 10% above the best estimate, and then by decreasing revenues by 10% below the best

Conduct a sensitivity analysis for revenues by increasing revenues by 10% above the best estimate, and then by decreasing revenues by 10% below the best estimate. MAXIMIZE THE USE OF FORMULAS! The SCFE Co. wants to add a production line. To do this, the company must spend $200,000 to expand its current building and purchase $1 million in new equipment. The new production line is expected to produce 100,000 units per year of a new product, which has a projected sales price of $7.75 per unit and a variable cost of $3.90 per unit. Introducing the new product is expected to cause sales of existing products to decrease by $89,000 per year and existing costs to decline by $49,000 per year. Fixed costs of the new line will be $142,000 annually. The company expects net working capital to increase by $1,800,000 when the new line is added, and then decrease by that amount when the project ends in five years. SCFE also expects to sell the equipment and building space at the end of the project in five years to net $320,990.36 after taxes. The company has a 34 percent marginal tax rate. SCFEs cost of capital is 11%. Depreciation would be as follows, Year 1: $206,349.20 Year 2: $326,349.20 Year 3: $198,349.20 Year 4: $121,549.20 Year 5: $121,549.20 NOTE: Always remember to maximize the use of formulas!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of The Sociology Of Finance

Authors: Karin Knorr Cetina, Alex Preda

1st Edition

0198708777, 978-0198708773

More Books

Students also viewed these Finance questions