Define (a) sensitivity analysis, (b) scenario analysis, and (c) simulation analysis. If GEwere considering two projects (one for $500 million to develop a satellite communications systemand the other for $30,000 for a new truck), on which would the company be morelikely to use a simulation analysis?
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Define (a) sensitivity analysis, (b) scenario analysis, and (c) simulation analysis. If GE
were considering two projects (one for $500 million to develop a satellite communications system
and the other for $30,000 for a new truck), on which would the company be more
likely to use a simulation analysis?
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- Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows: Develop and solve an integer programming model for maximizing the net present value. Assume that only one of the warehouse expansion projects can be implemented. Modify your model from part (a). Suppose that if test marketing of the new product is carried out, the advertising campaign also must be conducted. Modify your formulation from part (b) to reflect this new situation.The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. Solve, a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $345,000; market value at end of year six = $120,000; annual revenues = $120,000; annual expenses = $8,000; equipment life = 6 years; effective income tax rate = 50%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment’s ATCFs. Is youranswer in Part (a) the same as your answer in Part (b)?
- Market Fresh Foods is evaluating a new project to determine whether it warrants funding consideration. Having just taken over managing the project initiation process for Market Fresh from the previous project controller, Ray Bones is trying to evaluate the project's potential given its projected cash flows. As a first step, Ray developed the table of investment and revenue estimates below that he plans to use to determine the project's net present value. Market Fresh's CFO has indicated that, based on assumptions about risk during the course of the project, Ray should initially use 0.15 as a discount rate, but use 0.14 beginning in year 6. Assume all cash flows occur at the end of the specified year and calculate all values to three decimal places. if the problem has table data, copy the following lines and paste into the appropriate spot in the text section\footnotesize \baselineskip = 12pt\begin{tabular}{c | c}Investment & Revenue \\ \hline12.4 & 0 \\ 15.8 & 0 \\ 17.5…Your boss wants you to conduct a sensitivity and scenario analysis to determine whether the following project is a winner. You are entering an established market, and you know the market size will be 1,100,000 units. You are unsure of your exact market share, the price you will be able to charge, and your variable cost per unit, but have determined a range of possible values for each (in the table below). Your initial investment cost is $150 million, and that investment will depreciate in straight-line form over the 20-year life of the project. There are no new NWC requirements, and there will be no salvage value at the end of the 20 years. The tax rate is 35%. The discount rate is 18%. a) Use the following table to conduct a full sensitivity analysis for the project. Make sure to include the NPV for the expected outcome as part of the full sensitivity analysis. Also add the best- and worst-case scenarios to the full sensitivity analysis. Show all of your work (written out, not an…We considered two alternative designs for a new ride called the Scream Machine at a theme park in Florida. Design A had an initial cost of $300,000 and net annual after-tax revenues of $55,000; Design B had an initial investment of $450,000 and net annual after-tax revenues of $80,000. A 10% MARR was used over the 10-year planning horizon. Using sensitivity analysis, determine under what circumstances Design A will be preferred over Design B, and vice versa.
- . Suppose that your organization wants to decide which one of the given two projects can be selected for the development, as summarized in the following table. Calculate the Expected Monetary Value (EMV) for each project and suggest which project can be selected? Probability of occurrence of risk/opportunity (Impact) Estimated Profits/Losses Project 1 40% $140000 60% -$60000 Project 2 80% $40000 20% -$8000Suppose you are a small business owner and are considering investing in a new project that has an expected cash flow of $100,000 in year 1, $150,000 in year 2, and $250,000 in year 3. The initial investment required for the project is $400,000. You have a required rate of return of 10% for this project. Is it a good investment? Justify your investment decision. b) After further careful evaluation, you ascertain that the required rate of return for a similar industry project is 7%. Re-evaluate the investment opportunity using the new required rate of return. Does your recommendation change?The management of Digital Waves, Inc. is considering a project with a net initial cost of$115,000 and an annual net cash inflow estimated at $30,000 over the project's life of 5years. The company has a cost of capital of 6 percent. The project under considerationhas risk that is typical for the company.What is the project's IRR? Show enough trials to indicate that you understand the process. Show that your answer equates the cost of the project to the present value of future cash flows.
- A laboratory within Bayer is considering the five indivisible investment proposals below to further upgrade their diagnostic capabilities to ensure continued leadership and state-of-the-art performance. The laboratory uses a 10-year planning horizon, has a MARR of 10%, and a capital limit of $1,000,000. For the original opportunity statement: a. Which alternatives should be selected to form the optimum portfolio for the lab? b. What is the present worth for the optimum investment portfolio? c. What is the IRR for the portfolio?Evans Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm's ongoing need for additional aluminum-extrusion capacity. The three machines—A, B, and C—are equally risky. The firm plans to use a cost of capital of 11.7% to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table. Machine A MachineB Machine C Initial investment 91,900 64,700 100,200 Year Cash inflows 1 11,000 10,200 30,500 2 11,000 19,900 30,500 3 11,000 30,200 30,500 4 11,000 39,500 30,500 5…Evans Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm's ongoing need for additional aluminum-extrusion capacity. The three machines—A, B, and C—are equally risky. The firm plans to use a cost of capital of 12.7% to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table. Machine A Machine B Machine C Initial investment 91,500 64,100 100,300 Year Cash inflows 1 12,600 9,200 29,100 2 12,600 19,000 29,100 3 12,600 29,400 29,100 4 12,600 40,200 29,100 5 12,600 - 29,100 6…