Sensitivity analysis: San Lucas Corporation

San Lucas Corporation is considering investment in robotic machinery based upon

the following estimates:

a$.$ Determine the net present value of the equipment, assuming a desired rate of

return of $10\%$ and annual net cash flows of $$700,000.$ Use the present value tables

appearing in Exhibits $2$ and $5$ of this chapter.

Net present value $$

b$.$ Determine the net present value of the equipment, assuming a desired rate of

return of $10\%$ and annual net cash flows of $$500,000,$$$700,000,$ and $$900,000.$

Use the present value tables $($Exhibits $2$ and $5)$ provided in the chapter in

determining your answer. If required, use the minus sign to indicate a negative net

present value.

c$.$ Determine the minimum annual net cash flow necessary to generate a positive

net present value, assuming a desired rate of return of $10\%.$ Round to the

nearest dollar.

Annual Net Cash Flow

d$.$ San Lucas Corporation wishes to invest in a robotics project. Based on the

information from the above requirements, at what cash flow should San Lucas

Corporation accept the project?

$($a$)$ If the net cash flow is $$700,000$

$($b$)$ If the net cash flow is $$900,000$

$($c$)$ If the net cash flow is $$500,000$

$($d$)$ Both $$700,000$ and $$900,000$ net cash flow.

In the above given situation identify the statement that supports San Lucas

Corporation's decision of accepting $$700,000$ and $$900,000$ net cash flows.

$($a$)$ The net cash inflow is higher and in turn increases the profitability of the

business.

$($b$)$ The net present value and the cash flows are positive.

$($c$)$ The net present value can be ignored and the decision is based on the net cash

inflow.

$($d$)$ None of the above.