You are to conduct an extensive sensitivity analysis on the problem described se

Question

You are to conduct an extensive sensitivity analysis on the problem described sensitivity will consist of three parts: A range approach where the most optimistic, most likely, and most pessimistic value of dependent variables NPV and IRR are determined A range approach where 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. b. A probabilistic approach using Monet Carlo Simulation. Complete 10 iterations and create cumulative probability curves for NPV and IRR c. The project life is 7 years and the 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 PROF(T SALUAGE INVEST PROFIT PROFIT PROFIT PRoFr

Explanation / Answer

SO the optimistice value would be somehere 19,000 - 20,000 which will give positive NPV

Around 18,500 per year would give NPV of only $ 329.

Most pessimistic value would be around 16000 - 18000 which is expected to give negative NPV

Investment Profit Salvage value Total cashflow PV @ 10% 0         (100,000)             (100,000) (100,000) 1      20,000                 20,000        18,182 2      20,000                 20,000        16,529 3      20,000                 20,000        15,026 4      20,000                 20,000        13,660 5      20,000                 20,000        12,418 6      20,000                 20,000        11,289 7      20,000                20,000                 40,000        20,526 NPV          7,632 IRR 12.1%

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