Using the spreadsheet you previously constructed and the cost of capital calculations you computed, determine if Amazon should do the Cheetah project. Use the following capital budgeting techniques.

1. Payback period

2. Net present value

3. Internal rate of return

Now lets test the sensitivity of the project to some changes in the assumptions.

4. Take the cost of capital you previously computed (in week 8) and add 4% to the value (for example, if WACC was 12%, make it 16%) and recalculate NPV. What happens to IRR? Is the project still desirable?

5. Suppose the cost of goods sold percentage rises by 2.5%. Compute the payback period, NPV and IRR. Use the original WACC you computed.

6. How sensitive is NPV to the changes made in 4 and 5?