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Consider the following case: Coppinger Corp. is evaluating a new project. Coppinger used the expected values of unit sales, price per unit, and variable cost
Consider the following case: Coppinger Corp. is evaluating a new project. Coppinger used the expected values of unit sales, price per unit, and variable cost per unit to calculate an expected NPV of $13,500. Coppinger has developed a few different possible cases of what demand and costs might look like for the new project, which are summarized in this table: What kind of risk analysis is Coppinger using? Simulation analysis Scenario analysis Sensitivity analysis Suppose Coppinger Corp. is evaluating a new capital budgeting project and conducting some basic risk analysis. First, it calculates the project's NPV at various levels for the project's key input variables. Coppinger next calculates the project's NPV at various prices per unit, plots the results on the accompanying graph, and then repeats this process separately for variable cost per unit and required return. This process is a, whose results are shown on the graph. According to this analysis, which variable is the key value At the current input-value estimates, does this project driver for the project? have a positive or negative NPV? Required return Price per unit Variable cost per unit Negative NPV Positive NPV Decision trees are a visual representation of the sequential choices that financial decision makers face when making capital budgeting and investment decisions. In decision tree analysis, the discount rate as you move through the dension tree
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