Question 12 5 pts It is recommended that you use a spreadsheet (such as the sample income/cash flow statement or sensitivity analysis spreadsheet on Canvas) to solve this problem, though it can be solved by hand. A manufacturing firm is planning a capacity expansion project requiring capital investment of $500,000 (5-year MACRS asset) and fixed operation and maintenance costs of $25,000 per year for a 7-year project life. In the most likely scenario, the expansion would enable to the company to produce an additional 100,000 units per year. The parts would sell for $5 each with variable costs of $3 per part. The MARR of the firm is 10%. The asset has no salvage value at the end of the project, and the firm's marginal tax rate is 21%. Assuming uncertainty of +/-20% on sales price, variable cost per unit, and overall demand...to which of these 3 variables is the project most sensitive (in other words, which of them will have the biggest effect on NPW should their value change)? Sales Price The project is equally sensitive to all three of these variables. Variable Cost Demand Question 13 5 pts It is recommended that you use a spreadsheet (such as the sample income/cash flow statement or sensitivity analysis spreadsheet on Canvas) to solve this problem, though it can be solved by hand. A manufacturing firm is planning a capacity expansion project requiring capital investment of $500,000 (5-year MACRS asset) and fixed operation and maintenance costs of $25,000 per year for a 7-year project life. In the most likely scenario, the expansion would enable to the company to produce an additional 100,000 units per year. The parts would sell for $5 each with variable costs of $3 per part. The MARR of the firm is 10%. The asset has no salvage value at the end of the project, and the firm's marginal tax rate is 21%. Consider the sensitivity of the project to a unit sales price drop of 20%. Which of the following statements is true? The project is not very sensitive to a 20% sales price drop, with the NPW of the project remaining strongly positive. The NPW of the project after the 20% price drop is negative, but since that is no different from the base case, the price drop has no effect on project acceptance. The project is very sensitive to a 20% sales price drop since the NPW of the project would fall well below zero. The project is somewhat sensitive to a 20% sales price drop, but the NPW of the project would remain slightly positive