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The following exhibit contains Beech's estimates of demand, price, and fixed and variable costs for the Starship under three alternative economic forecasts. Variable (per
The following exhibit contains Beech's estimates of demand, price, and fixed and variable costs for the Starship under three alternative economic forecasts. Variable (per year) Demand Price Fixed cost Variable cost *Dollars in millions Pessimistic 50 2 22 1.75 Normal 75 2.7 15 1.50 Optimistic 125 3.2 7 1.0 a. If all other variables are assumed to be at their expected value (normal forecast), how sensitive is the project's NPV to changes in fixed cost? Use a cost of capital of 10%, tax rate of 35%, and project life of years. b. How sensitive is the project's NPV to changes in price? c. How sensitive is the project's NPV to changes in variable cost? d. Which factor seems most important to the success of the plane? e. Is the Starship a risky project? Explain.
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