Blooper’s analysts have come up with the following revised estimates for its mag

Question

Blooper’s analysts have come up with the following revised estimates for its magnoosium mine:

Range

Conduct a sensitivity analysis for each variable and range and compute the NPV for each. Use Spreadsheet 10.1 and accompanying data as a starting point for the analysis. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in thousands rounded to the nearest whole dollar.)

                                   

              PROJECT NPV

                                  Pessimistic            Expected         Optimistic

Initial Investment       

Revenues

Variable Costs

Fixed Costs

Working Capital

Spreadsheet 10.1

Range

Pessimistic Optimistic Initial investment + 50 % – 25 % Revenues – 25 % + 20 % Variable costs + 15 % – 25 % Fixed cost + 25 % – 45 % Working capital + 25 % – 40 %

Explanation / Answer

Based on the information given in the table above and using spreadsheet, we can calculate NPV for different scenarios mentioned in the problem. We get NPV matrix as follows-

Pessimistic Expected Optimistic Initial investment -377 4,087 6,319 Revenues -728 4,087 7,938 Variable costs 1,972 4,087 7,612 Fixed cost 2,737 4,087 8,757 Working capital 3,693 4,087 4,717

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