Raghubhai Problem 7-27 Sensitivity AnalysisConsider a project to supply Detroit with 20,000 tons of machine screws annually forautomobile production. You will need an initial $3,600,000 investment in threadingequipment to get the project started; the project will last for 4 years. The accountingdepartment estimates that annual fixed costs will be $850,000 and that variable costsshould be $240 per ton; accounting will depreciate the initial fixed asset investmentstraight-line to zero over the 4-year project life. It also estimates a salvage value of$250,000 after dismantling costs. The marketing department estimates that theautomakers will let the contract at a selling price of $380 per ton. The engineeringdepartment estimates you will need an initial net working capital investment of$360,000. You require a return of 11 percent and face a marginal tax rate of 24 percenton this project. Suppose you're confident about your own projections, but you're a littleunsure about Detroit's actual machine screw requirements.a. What is the sensitivity of the project OCF to changes in the quantity supplied? (Do notround intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)b. What about the sensitivity of NPV to changes in quantity supplied? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)c. Given the sensitivity number you calculated, is there some minimum level of outputbelow which you wouldn't want to operate? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.)a. AOCF/AQb. ANPV/AQc. Minimum level of outputunits

Name: Raghubhai Problem 7-27 Sensitivity AnalysisConsider a project to suppl
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Description: Raghubhai Problem 7-27 Sensitivity AnalysisConsider a project to supply Detroit with 20,000 tons of machine screws annually forautomobile production. You will need an initial $3,600,000 investment in threadingequipment to get the project started; the

Net present value is computed by deducting the initial cost from the current value of cash flows. It…

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a. What is the sensitivity of the project OCF to changes in the quantity supplied? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What about the sensitivity of NPV to changes in quantity supplied? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Given the sensitivity number you calculated, is there some minimum level of output below which you wouldn't want to operate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)