The Charvon oil company is planning to make a large investment in coal-to-liquids (CTL) gasoline. The end product will be a perfect substitute for gasoline made from petroleum, but the feedstock will be coal instead of oil. Two technologies are available to the Charvon company. The first is called indirect CTL, where the coal is gasified prior to being liquefied. The second is called direct CTL, where the coal is dissolved in a solvent, and the resulting liquid is processed into gasoline. The Charvon company has hired you as a consultant to help them decide which technology they should choose. Charvon expects to produce one million gallons of CTL gasoline for five years following construction of the plant, and they can sell the gasoline for $3 per gallon. The capital cost of indirect CTL is $9 million and operating costs for indirect CTL (labor, fuel, and maintenance) are $600,000 per year. The capital cost of direct CTL is $9.45 million and operating costs for direct CTL are $500,000 per year.

This time I would like you to define your own sensitivity or threshold analysis on the CTL problem, and implement it in the decision to invest in direct or indirect CTL. Describe your chosen sensitivity/threshold analysis and illustrate your results graphically. You should choose a different parameter than in Question 3. Examples of parameters to choose might be the level of the carbon tax, the CO2 emissions from indirect CTL, or the capital costs of the plants. Try to identify a parameter whose value really matters to the decision.