Purple Turtle Group Foods is a firm that wants to increase the variety of its pr

Question

Purple Turtle Group Foods is a firm that wants to increase the variety of its products and considers two projects, iLunch and iBreakfast. Purple Turtle Group hires you as an analyst to perform sensitivity analysis. The following tables present the data for the two projects: In order to perform a sensitivity analysis, you need to do the following. (Check all that apply.) Find the project's net present value (NPV) using the base-case value for each input variable. Increase the value of variable costs from their expected value while decreasing the value of nonvariable costs. Find the variable that deviates the most from the base case and inform Purple Turtle Group's management that it has the greatest impact on the NPV. Increase and decrease each variable from its expected value, holding other variables constant at their base-case levels. Suppose Purple Turtle Group can afford only one new product at this time. Based on the data tables and assuming that variables will not change much from their expected values, you recommend that Purple Turtle Group should choose because of the following reason: iBreakfast is less risky than iLunch. iLunch is less risky than iBreakfast.

Explanation / Answer

(1) To do sensitivity analysis, we

- Find NPV using base case values

- Increase and decrease each variable from its expected value.

(2) Purple should choose iBreakfast, because iBreakfast is less risky than iLunch.

(This is evident from the fact that Range of deviation is lower for every variable, for iBreakfast).

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