DATA:
To better understand the risks involved, perform a sensitivity analysis for the best alternative by considering the following: - LOW case (Sensitivity Index: 0.5) - MID case (Sensitivity Index: 1 ) - HIGH case (Sensitivity Index: 2 ) of the following parameters by reporting the after-tax NPV obtained by changing the following parameters: - Intangible capital investment - Operating costs - Oil price Update the cash-flow table for each sensitivity. Then, construct the Tornado Diagram to visualize the sensitivity for the after-tax NPV by indicating which uncertainty is more important. Present your numeric results as a sensitivity table with the following form: (40 pts) Tables below show the cash-flow models for Scenarios 1, 2 and 3 , respectively. Sample Calculation for Depreciation: For Scenario-1, Year-1: Sum-of-the-years digits: i=1nm=1+2+3+4+5+6+7+8+9+10=55 Tangible investment (C)=$2,000,000, Salvage (S)=$0 (CS)=$2,000,000$0=$2,000,000 Depreciation allowance (n=10,m=1) : D=i=1nmnm+1(CS)=55101+1($2,000,000)=$363,636 Sample Calculation for Depletion: For Scenario-1, Year-1: Net Revenue after Depr. and Expenses: $6,436,364 Therefore, depletion allowance cannot exceed 50% of $6,436,364=$3,218,182 Based on Percentage Depletion of 20%,20% of total revenues of $7,000,000,$1,400,000 is allowed. Since this amount is less than $3,218,182, the allowance would be $$1,400,000 To better understand the risks involved, perform a sensitivity analysis for the best alternative by considering the following: - LOW case (Sensitivity Index: 0.5) - MID case (Sensitivity Index: 1 ) - HIGH case (Sensitivity Index: 2 ) of the following parameters by reporting the after-tax NPV obtained by changing the following parameters: - Intangible capital investment - Operating costs - Oil price Update the cash-flow table for each sensitivity. Then, construct the Tornado Diagram to visualize the sensitivity for the after-tax NPV by indicating which uncertainty is more important. Present your numeric results as a sensitivity table with the following form: (40 pts) Tables below show the cash-flow models for Scenarios 1, 2 and 3 , respectively. Sample Calculation for Depreciation: For Scenario-1, Year-1: Sum-of-the-years digits: i=1nm=1+2+3+4+5+6+7+8+9+10=55 Tangible investment (C)=$2,000,000, Salvage (S)=$0 (CS)=$2,000,000$0=$2,000,000 Depreciation allowance (n=10,m=1) : D=i=1nmnm+1(CS)=55101+1($2,000,000)=$363,636 Sample Calculation for Depletion: For Scenario-1, Year-1: Net Revenue after Depr. and Expenses: $6,436,364 Therefore, depletion allowance cannot exceed 50% of $6,436,364=$3,218,182 Based on Percentage Depletion of 20%,20% of total revenues of $7,000,000,$1,400,000 is allowed. Since this amount is less than $3,218,182, the allowance would be $$1,400,000
