During Inc. is evaluating a new capital budgeting project and conducting some ba

Question

During Inc. is evaluating a new capital budgeting project and conducting some basic risk analysis. First, it calculated the project's NPV at various levels for the project's key inputs: price per unit, variable cost per unit, and the project's WACC. This process is a sensitivity analysis whose results are graphed below:

1) According to this analysis, which variable is the key value drive for the project?

- WACC
- Variable cost per unit
- Price per unit

2) At the current input value estimates, does this project have a positive or negative NPV?

3) Which type of firm is more likely to base its decisions on stand-alone risk?
- A large, widely held firm whose owners are well diversified and do not have very much of their wealth tied up in the firm

- A small, closely held firm whose owners have much of their wealth tied up in the firm (The answer I chose, is that correct?)

THANKS!!!

Explanation / Answer

- WACC

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