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# fm12 22 - capital is downward sloping because a higher cost...

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Sensitivity Analysis \$0 \$20,000 \$40,000 \$60,000 \$80,000 \$100,000 \$120,000 \$140,000 \$160,000 \$180,000 -40% -20% 0% 20% 40% Deviation from Base-Case Value NPV WACC Units Sold Salvage A. The sensitivity lines intersect at 0% change and the base case NPV, \$81,573. Since all other variables are set at their base case, or expected values, the zero change situation is the base case. B. The plots for unit sales and salvage value are upward sloping, indicating that higher variable values lead to higher NPVs. Conversely, the plot for cost of
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Unformatted text preview: capital is downward sloping, because a higher cost of capital leads to a lower NPV. C. The plot of unit sales is much steeper than that for salvage value. This indicates that NPV is more sensitive to changes in unit sales than to changes in salvage value. D. Steeper sensitivity lines indicate greater risk. Thus, in comparing two projects, the one with the steeper lines is considered to be riskier. Mini Case: 12 - 22...
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