You are conduct an extensive sensitivity analysis on the problem described sensi

Question

You are conduct an extensive sensitivity analysis on the problem described sensitively analysis will consist of three parts: A range approach where the optimistic, most likely, and most pessimistic value of dependent variables NPV and IRR are determined A range approach where is the mean value is determined for each independent variable and then each variable is allowed to vary +/-20% about that mean while all other independent variables are held constant. Create spider plots for NPV and IRR using the results. A probabilistic approach using Monest Carlo Simulation. Complete 10 iterations and create cumulative probability curves for NPV and IRR. The project life is 7 years MARR is 10% The initial investment is given by uniform distribution between $200,000 and $300,000 The annual profit is given by a triangular distribution that has a minimum value of $55,000/year a mode of 67,500/year, and a maximum value of $85,000 year The salvage value of the investment is given by a triangular that has a minimum value of $60,000. A mode of $75,000, and a maximum value of $85,000

Explanation / Answer

Answer: Annual profit = $67,500 Initial investment = $250,000 Salvage value = $75,000 Project Life = $7 year MARR = 10% Year Initial Investment Profits Cahflow at +20% Cahflow at -20% 0 ($250,000) ($300,000) ($200,000) 1 $67,500 $81,000 $51,300 2 $67,500 $81,000 $51,300 3 $67,500 $81,000 $51,300 4 $67,500 $81,000 $51,300 5 $67,500 $81,000 $51,300 6 $67,500 $81,000 $51,300 7 $142,500 $171,000 $108,300 Therefore NPV = $140,526.15 $216,100.00 IRR = 21.89% 20.14%

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