B. Problem Statement You are the owner of a mushroom farm and are planning to ex
ID: 2794462 • Letter: B
Question
B. Problem Statement You are the owner of a mushroom farm and are planning to expand your operation to meet the growing demand for mushrooms While you've done the necessary due diligence and are satisfied with the projected values of key project parameters (e.g., annual revenues and operating costs), you are not fully confident that your world will unfold exactly as projected Because of your lingering uncertainty, you've mandated a former classmate of yours to perform project. . m a one-way sensitivity analysis of your o The current "best guesses for project parameters are listed below: I. Initial cost (P)= $450,000 2. Salvage value (SV) = $45,265 3. Annual operating revenues (AOR)= $300,000 4. Annual operating costs (AOC)= $180,000 5. Economic life (N) 5 years 6. MARR= 10% 7. Inflation Rate= 0% One-way Sensitivity Table Net Present Worth (NP Parameters | -15% |-10%| -5% | Reference l +5% | +10% | +15% Scenario AOR AOC SV MARRExplanation / Answer
Soln : 16 ) The most influential paramenter as per the sensitivity table given is Initial cost, while the next influential parameter should be Annual operating revenue as also reflecting in table given.
17) Please refer the table below :
On adding the value in the last row, we get breakeven i.e. $483000
18) Now, to calculate the breakeven value of annual operating revenue. It means the total sales to be done in the 5 years to reach breakeven, using trial and error and cost as $180000
We will get the profit = 291300 - 180000 = $111300
Again use the table :
Add the total PV column values, you will get $450020
i.e. breakeven of revenue part must be $291300.
Year 0 1 2 3 4 5 Cash outflow -450000 Cash Inflow 120000 120000 120000 120000 165265 rate 1.1 1.1 1.1 1.1 1.1 PV 109090.9 99173.55 90157.78 81961.61464 102616.6Related Questions
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