This is for the course Capital Budgeting and Financial Modeling

Use Excel to answe as instructed below.

All excel model should be created in a consistent format and follow the suggested best practice listed below:

Structure your model as clearly and simply as possible

Usable in your absence

Assumptions should be clustered together

Save often (Ctrl s) and keep saving new versions of your model; Excel does crash sometimes

Take time to take a step back and think

Sensitivity Analysis: Problem. Consider the same project as above. Assume that the product life cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the sensitivity of the project NPV to the unit's sales scale factor and to the cost of capital. Solution Strategy. Copy the pattern of unit sales in the base case to a new location and multiply this pattern by a scale factor to get the new unit sales scenario. Assume that the real cost of capital is constant. Thus, forecast the future cost of capital by taking the year 1 cost of capital and adding the change in the inflation rate. Create a two-way data table using a range of input values for units sales scale factor and a range of input values for the year 1 cost of capital. Using the data table results, create a 3-D surface chart. Sensitivity Analysis: Problem. Consider the same project as above. Assume that the product life cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the sensitivity of the project NPV to the unit's sales scale factor and to the cost of capital. Solution Strategy. Copy the pattern of unit sales in the base case to a new location and multiply this pattern by a scale factor to get the new unit sales scenario. Assume that the real cost of capital is constant. Thus, forecast the future cost of capital by taking the year 1 cost of capital and adding the change in the inflation rate. Create a two-way data table using a range of input values for units sales scale factor and a range of input values for the year 1 cost of capital. Using the data table results, create a 3-D surface chart