B. Problem Statement You are the owner of a mushroom farm and are planning to ex

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 MARR

Explanation / Answer

22 At Brea even MARR NPV = 0 Year cash flow PV factor PV 0 -450000 1 -450000.00 1 to 5 120000 ? 0.00 5 45265 ? 0.00 -450000.00 Annual cash inflows=300000-180000 At Break even MARR NPV = 0 120000 x PVAF(r,5) + 45265 x PVIF(r,5) -450000 =0 At r = NPV 12% 8257.72 r 0 13% -3364.22 Using linear interpolation - r-12/13-12 = (0-8257.72)/(-3364.22-8257.72) r-12 = 0.7105 x 1 r = 0.7105 + 12 r = 12.71 (Approx) Ans - d 23 Initial investment in pessimistic - 450000 x (1-0.15) = 450000 x 0.85 24 Annual operating cost in optimistic - 180000 x (1 - 0.15) = 180000 x 0.85 Because in optimistic scenario we change values for good. Please provide feedback… Thanks in Advance :-)

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