5 Your company is considering investing in a new production machine. Three of themachine's parameters are considered uncertain: the initial investment, unitsproduced and MARR. A sensitivity graph which plots the present worth of themachine vs. the percentage change from the base case is illustrated below. Thevalues used for the base case are provided in the table.Cost categoryInitial investmentUnits producedBase case$25,00050,000MARR10%Units Produced$50,000$40,000$30,000$20,000PWS10,000Initial InvestmentSI0.000MARR$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? Selectthe correct parameter between Part (a) options 1 to 4. (b) What is the break even MARR? Select the correct break even MARR betweenPart (b) options 1 to 4.(c) What is the break even cost for the initial investment? Select the correct breakeven cost between Part (c) options 1 to 4.Select 3 correct answer(s)Part (a) - Option 1: Initial investmentPart (a)- Option 2: MARROPart (a) - Option 3: Present worthOPart (a) - Option 4: Units producedPart (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 $27,500Part (a) - Option 2: MARRPart (a) - Option 3: Present worthPart (a) - Option 4: Units producedPart (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 = $27,500Part (c)- Option 2: break even cost for initial investment = $2,500Part (c) - Option 3: break even cost for initial investment = $22,500Part (c)- Option 4: break even cost for initial investment = $24,500

The question is based on the concept of sensitivity study in capital budgeting. The sensitivity…

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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 11P

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