Consider the NPV sensitivity analysis reported in the following table (the numbers in the body of the table are dollars). Deviation Cover sales Price Operating cost Discount rate +20% -108,680 -70,765 -180,678 -150,987 +10% -122,783 -98,498 -160,094 -145,876 Base case -150,929 -150,929 -150,929 -150,929 -10% -164,890 -189,756 -125,098 -138,743 -20% -189,428 -200,690 -115,867 -133,987 Range 80,748 129,925 64,811 17,000 A) Which variable is the most risky for the project? Explain why. B) Which variable is the least risky for the project? Explain why. C) If you were told that the probability of any deviation in the risky event you identified in a) was 0.001%, how would that affect the answer you gave in a)?

Consider the NPV sensitivity analysis reported in the following table (the numbers in the body of the table are dollars). Deviation Cover sales Price Operating cost Discount rate +20% -108,680 -70,765 -180,678 -150,987 +10% -122,783 -98,498 -160,094 -145,876 Base case -150,929 -150,929 -150,929 -150,929 -10% -164,890 -189,756 -125,098 -138,743 -20% -189,428 -200,690 -115,867 -133,987 Range 80,748 129,925 64,811 17,000 A) Which variable is the most risky for the project? Explain why. B) Which variable is the least risky for the project? Explain why. C) If you were told that the probability of any deviation in the risky event you identified in a) was 0.001%, how would that affect the answer you gave in a)?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.16E

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Deviation	Cover sales	Price	Operating cost	Discount rate
+20%	-108,680	-70,765	-180,678	-150,987
+10%	-122,783	-98,498	-160,094	-145,876
Base case	-150,929	-150,929	-150,929	-150,929
-10%	-164,890	-189,756	-125,098	-138,743
-20%	-189,428	-200,690	-115,867	-133,987
Range	80,748	129,925	64,811	17,000