The managers of a company are considering an investment with the following estimated cash flows. MARR is 20% per year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows and the useful life are approximate values. The capital investment is known to be within ±4%. Annual expenses are known to be within ± 10%. The annual revenue, market value, and useful life estimates are known to be within ±20%. a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation regarding whether or not they should proceed with this project. Graph your results for presentation to management. b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest

The managers of a company are considering an investment with the following estimated cash flows. MARR is 20% per year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows and the useful life are approximate values. The capital investment is known to be within ±4%. Annual expenses are known to be within ± 10%. The annual revenue, market value, and useful life estimates are known to be within ±20%. a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation regarding whether or not they should proceed with this project. Graph your results for presentation to management. b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The managers of a company are considering an investment with the following estimated cash flows. MARR is 20% per
year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows
and the useful life are approximate values. The capital investment is known to be within +4%. Annual expenses are
known to be within + 10%. The annual revenue, market value, and useful life estimates are known to be within +20%.
a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation
regarding whether or not they should proceed with this project. Graph your results for presentation to management.
b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank
Capital investment $33,000
Annual revenues $23,000
Annual expenses
$5,500
Market value
$1,000
Useful life 10 years
these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest
need).

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