Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable

costs per unit, and number of units sold. Set these variables$$ values at $10\%$ and $20\%$ above and below their base$-$

case values. Include a graph in your analysis.

$\%$ Deviation SALES PRICE

Note: The graph should resemble Figure $11-3$ in the text $($i$.$e$.,$

straight lines!$)$ when completed. I have left some correct

answers in here to help you calibrate your own answers. To fill

in the blanks in this table, go to the top of the spreadsheet and

change your assumed value, then note the change in NPV and

record the new value in these sensitivity tables. The graph and

summary table below it should fill automatically for you.

from Base NPV

Base Case $$24\mathrm{.}00$

$-20\%$

$-10\%$ $$21\mathrm{.}60$ $ $(1,215)$

$0\%$

$10\%$ $$26\mathrm{.}40$ $ $8,141$

$20\%$

$\%$ Deviation VARIABLE COST $\%$ Deviation $1$st YEAR UNIT SALES

from Base NPV from Base NPV

Base Case $$17\mathrm{.}50$ Base Case $1,000$

$-20\%-20\%$

$-10\%$ $$15\mathrm{.}75$ $ $6,932-10\%900$ $ $2,254$

$0\%0\%$

$10\%$ $$19\mathrm{.}25$ $ $(6)10\%1,100$ $ $4,673$

$20\%20\%$

Deviation NPV at Different Deviations from Base

from Sales Variable

Base Case Price Cost$/$Unit Units Sold

$-20\%$ $$0$ $$0$ $$0$

$-10\%-$$$1,215$ $$6,932$ $$2,254$

$0\%$ $$0$ $$0$ $$0$

$10\%$ $$8,141-$$$6$ $$4,673$

$20\%$ $$0$ $$0$ $$0$

Range

Considering equal percentage changes, the NPV appears LEAST sensitive to changes in which of these three variables?

c$.$ Assume you have determined the project appears to be more risky than an average project for Webmasters. That

is$,$ it's a "high risk project." Find its risk$-$adjusted NPV and IRR.

Low$-$risk WACC $=8\%$

WACC $=10\%$

High$-$risk WACC $=13\%$

Risk$-$adjusted WACC $=$

Risk adjusted NPV $=$

IRR $=$ Hint, hint: will IRR change with a change in WACC $($discount rate$)?$

e$.$ On the basis of information in the problem, would you recommend that the project be accepted? Briefly justify

your response to your supervisor.

Sensitivity Analysis

$20\%10\%0\%-10\%-20\%$

$(7,000)$

$(5,000)$

$(3,000)$

$(1,000)$

$1,000$

$3,000$

$5,000$

$7,000$

$9,000$

$11,000$

Percentage Deviation from Base

NPV $($$$)$

Sales Price

Units Sold

Variable Cost