Finefodder’s analysts have come up with the following revised estimates for the

Question

Finefodder’s analysts have come up with the following revised estimates for the Gravenstein store:

Range

Pessimistic

Expected

Optimistic

  Investment

$

5,160,000

$

5,100,000

$

5,040,000

  Sales

11,000,000

15,000,000

17,000,000

  Variable costs as % of sales

71

69

67

  Fixed cost

$

2,900,000

$

2,800,000

$

2,700,000

Assume the project life is 12 years, the tax rate is 40%, the discount rate is 8%, and the depreciation method is straight-line over the project's life. Conduct a sensitivity analysis for each variable and range and compute the NPV for each. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Negative amounts should be indicated by a minus sign. Enter your answers in dollars, not in millions.)

NPV of Gravenstein Store

Pessimistic

Expected

Optimistic

  Investment

$

$

$

  Sales

$

$

$

  Variable costs as % of sales

$

$

$

  Fixed cost

$

$

$

Finefodder’s analysts have come up with the following revised estimates for the Gravenstein store:

Explanation / Answer

Sensitivity Analysis Sensitivity Analysis Sensitivity Analysis Range Pessimistic Expected Optimistic   Investment $ 51,60,000 $ 51,00,000 $ 50,40,000   Sales 1,10,00,000 73% 1,50,00,000 100% 1,70,00,000 100%   Variable costs as % of sales 71% 69% 67% Variable Costs 7810000 52% 10350000 69% 11390000 67%   Fixed cost $ 29,00,000 19% $ 28,00,000 19% $ 27,00,000 16% Tax Impact 40% 116000 1% 740000 5% 1164000 7% Net Profit 1,74,000 1% 11,10,000 7% 17,46,000 10% Project Life 12 years 12 years 12 years Cost of Capital 8% 8% 8% Assume the project life is 12 years, the tax rate is 40%, the discount rate is 8%, and the depreciation method is straight-line over the project's life. Conduct a sensitivity analysis for each variable and range and compute the NPV for each. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Negative amounts should be indicated by a minus sign. Enter your answers in dollars, not in millions.) Sensitivity Analysis 1.58% 7.40% 10.27% For NPV, the details required for calculation are mentioned above Hence, the NPV is worked out for each of the three scenarios as under : NPV 35,63,631.88 30,23,191.30 75,16,659.46

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.