Determine midways sensitivity to various variables

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Reference no: EM133497015

Question: Midway is contemplating the purchase of a new fleet of buses featuring the latest fuel-efficient hybrid engines. The anticipated current cost for the new fleet is R100 million, and it is projected to yield an annual fuel cost saving of R16 million. Midway plans to use this fleet for the next fifteen years, at which point the buses could be sold for R35 million. The company's weighted average cost of capital ("WACC") is 14%.

For the purposes of this question, please disregard inflation and taxation.

Conduct a sensitivity analysis to determine Midway's sensitivity to various variables involved in this investment. These variables include:

The initial cost of the new fleet
The annual fuel cost savings
The projected lifespan of the fleet
The estimated resale value of the fleet after fifteen years
The weighted average cost of capital
Your analysis should indicate how changes in each of these variables could affect the net present value (NPV) of the investment in the new fleet.

Provide calculations and explanations to support your analysis.

Reference no: EM133497015

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