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: 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.)

Explanation / Answer

Pessimistic Expected Optimistic

Sensitivity Analysis on

Investments Amount:

Sales $19000000 $19000000 $19000000

Variable Cost $13300000 $13300000 $13300000

Fixed Cost $ 3400000 $3400000 $3400000

Depreciation $390000 $380000 $375000

Pretax Profit $1910000 $1920000 $1925000

Taxes $764000 $768000 $770000

Net Income $1146000 $1152000 $1158000

Cash Flow from Operations $1536000 $1532000 $1533000

Net Income $11575450 $11545305 $11552841

Less:Investments $4680000 $4560000 $4500000

NPV $6895450 $6985305 $7052841

Sensitivity on

Sales   

Sales $15000000 $19000000 $25000000

Variable Cost $10500000 $13300000 $17500000

Fixed Cost $ 3400000 $3400000 $3400000

Depreciation $380000 $380000 $380000

Pretax Profit $720000 $1920000 $3720000

Taxes $288000 $768000 $1488000

Net Income $432000 $1152000 $2232000

Cash Flow from Operations $1536000 $1532000 $2612000

Net Income $11575450 $11545305 $19684293

Less:Investments $4560000 $4560000 $4560000

NPV $7015450 $6985305 $15124293

Sensitivity Analysis on

Variable Cost:

Sales $19000000 $19000000 $19000000

Variable Cost $13680000 $13300000 $13110000

Fixed Cost $ 3400000 $3400000 $3400000

Depreciation $380000 $380000 $380000

Pretax Profit $4600000 $1920000 $2110000

Taxes $1840000 $768000 $844000

Net Income $2760000 $1152000 $1266000

Cash Flow from Operations $3140000 $1532000 $1646000

Net Income $23663354 $11545305 $12404421

Less:Investments $4560000 $4560000 $4560000

NPV $19103354 $6985305 $7844421

Sensitivity Analysis on

Fixed Cost:

Sales $19000000 $19000000 $19000000

Variable Cost $13300000 $13300000 $13300000

Fixed Cost $ 3500000 $3400000 $3100000

Depreciation $380000 $380000 $380000

Pretax Profit $1820000 $1920000 $2320000

Taxes $728000 $768000 $928000

Net Income $1092000 $1152000 $1392000

Cash Flow from Operations $1472000 $1532000 $1772000

Net Income $11093139 $11545305 $1335969

Less:Investments $4680000 $4680000 $4680000

NPV $6413139 $6985305 $867969

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