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Evaluation of the npv given a series of changes

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1. Sensitivity analysis is a method which allows for evaluation of the NPV given a series of changes to the underlying assumptions. Discuss why and how scenario analysis is used in addition to sensitivity analysis.

2.1. Windsor Co. has just purchased a $6,000,000 machine to produce big-screen TVs. The machine can be used for 10 years and is depreciated on a straight-line basis. Use the following information:

Sales price per TV =$1,500

Variable costs per TV =$1,100

Fixed costs per year = $120,000

Tax rate =40%

Discount rate = 8%

(a) How many TV must be produced and sold per year for you to receive any accounting profit?

(b) How many TV must be produced and sold per year for you to receive any economic profit?

Compare your answer in parts (a) and (b). How are they related to each each and why?

Reference no: EM132779670

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