Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Hello, I need a little help figuring out the answer to this homework problem. Can someone help me? value 1.00 points Problem 9-27 Sensitivity Analysis
Hello,
I need a little help figuring out the answer to this homework problem. Can someone help me?
value 1.00 points Problem 9-27 Sensitivity Analysis Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production You will need an initial $5,200,000 investment in threading equipment to get the project started, the project will last for six years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $300 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the six-year project life. It also estimates a salvage value of $600,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $370 per ton. The engineering department estimates you will need an initial net working capital investment of $500,000. You require a return of 15 percent and face a marginal tax rate of 30 percent on this project. Suppose you're confident about your own projections, but you're a little unsure about Detroit's actual machine screw requirement. a. What is the sensitivity of the project OCF to changes in the quantity supplied? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16). AOCFIAQ b. What is the sensitivity of NPV to changes in quantity supplied? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) ANPVIAQ c. Given the sensitivity number you calculated, is there some minimum level of output below which you wouldn't want to operate? (Do not round intermediate calculations and round your final answer to the nearest whole number.) Minimum level of output units
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started