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Your company is considering investing in a new production machine. Three of the machine's parameters are considered uncertain: the initial investment, units produced and MARR. A sensitivity graph which plots the present worth of the machine vs. the percentage change from the base case is illustrated below. The values used for the base case are provided in the table. Cost category Initial investment Units produced Base case $25,000 50,000 MARR 10% Units Produced $50,000 $40,000 $30,000 $20,000 PW S10,000 Initial Investment SI0,000 MARR $20,000 10% 8% 4% 2% 0% 2% 4% 6% 8% 10% Percentage Change from Base Case (a) The profitability of this machine is most susceptible to which parameter? Select the correct parameter between Part (a).options.1 to 4.

Your company is considering investing in a new production machine. Three of the machine's parameters are considered uncertain: the initial investment, units produced and MARR. A sensitivity graph which plots the present worth of the machine vs. the percentage change from the base case is illustrated below. The values used for the base case are provided in the table. Cost category Initial investment Units produced Base case $25,000 50,000 MARR 10% Units Produced $50,000 $40,000 $30,000 $20,000 PW S10,000 Initial Investment SI0,000 MARR $20,000 10% 8% 4% 2% 0% 2% 4% 6% 8% 10% Percentage Change from Base Case (a) The profitability of this machine is most susceptible to which parameter? Select the correct parameter between Part (a).options.1 to 4.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Your company is considering investing in a new production machine. Three of the machine's parameters are considered uncertain: the initial investment, units produced and MARR. A sensitivity graph which plots the present worth of the machine vs. the percentage change from the base case is illustrated below. The values used for the base case are provided in the table. Cost category Initial investment Units produced Base case $25,000 50,000 MARR 10% Units Produced $50,000 $40,000 $30,000 $20,000 PW S10,000 Initial Investment SI0.000 MARR $20,000 -10% 8% -6% 4% 2% 0% 2% 4% 6% 10% Percentage Change from Base Case (a) The profitability of this machine is most susceptible to which parameter? Select the correct parameter between Part (a) options 1 to 4.
Transcribed Image Text:Your company is considering investing in a new production machine. Three of the machine's parameters are considered uncertain: the initial investment, units produced and MARR. A sensitivity graph which plots the present worth of the machine vs. the percentage change from the base case is illustrated below. The values used for the base case are provided in the table. Cost category Initial investment Units produced Base case $25,000 50,000 MARR 10% Units Produced $50,000 $40,000 $30,000 $20,000 PW S10,000 Initial Investment SI0.000 MARR $20,000 -10% 8% -6% 4% 2% 0% 2% 4% 6% 10% Percentage Change from Base Case (a) The profitability of this machine is most susceptible to which parameter? Select the correct parameter between Part (a) options 1 to 4.
(b) What is the break even MARR? Select the correct break even MARR between Part (b) options 1 to 4. (c) What is the break even cost for the initial investment? Select the correct break even cost between Part (c) options 1 to 4. Select 3 correct answer(s) Part (a) - Option 1: Initial investment Part (a)- Option 2: MARR OPart (a) - Option 3: Present worth OPart (a) - Option 4: Units produced Part (b) Option 1: break even MARR = 6% Part (b) - Option 2: break even MARR = 10% Part (b) - Option 3: break even MARR = 10.6% Part (b) - Option 4: break even MARR = 9.2% Part (c) - Option 1: break even cost for initial investment $27,500 Part (a) - Option 2: MARR Part (a) - Option 3: Present worth Part (a) - Option 4: Units produced Part (b) - Option 1: break even MARR = 6% Part (b) - Option 2: break even MARR = 10% O Part (b) - Option 3: break even MARR = 10.6% Part (b) Option 4: break even MARR = 9.2% Part (c) - Option 1: break even cost for initial investment = $27,500 Part (c)- Option 2: break even cost for initial investment = $2,500 Part (c) - Option 3: break even cost for initial investment = $22,500 Part (c)- Option 4: break even cost for initial investment = $24,500
Transcribed Image Text:(b) What is the break even MARR? Select the correct break even MARR between Part (b) options 1 to 4. (c) What is the break even cost for the initial investment? Select the correct break even cost between Part (c) options 1 to 4. Select 3 correct answer(s) Part (a) - Option 1: Initial investment Part (a)- Option 2: MARR OPart (a) - Option 3: Present worth OPart (a) - Option 4: Units produced Part (b) Option 1: break even MARR = 6% Part (b) - Option 2: break even MARR = 10% Part (b) - Option 3: break even MARR = 10.6% Part (b) - Option 4: break even MARR = 9.2% Part (c) - Option 1: break even cost for initial investment $27,500 Part (a) - Option 2: MARR Part (a) - Option 3: Present worth Part (a) - Option 4: Units produced Part (b) - Option 1: break even MARR = 6% Part (b) - Option 2: break even MARR = 10% O Part (b) - Option 3: break even MARR = 10.6% Part (b) Option 4: break even MARR = 9.2% Part (c) - Option 1: break even cost for initial investment = $27,500 Part (c)- Option 2: break even cost for initial investment = $2,500 Part (c) - Option 3: break even cost for initial investment = $22,500 Part (c)- Option 4: break even cost for initial investment = $24,500
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