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payback, AAR, and PI. In the end, I have over a hundred different estimates and am more confused than ever. I would have been better off just sticking with my first estimate and goingby my gut reaction." Critique this statement. Difficulty level: DifficultTopic: Evaluation88. The Marx Brewing Company recently installed a new bottling machine. The machine's initial cost is $2,000, and can be depreciated on a straight line basis to a zero salvage in 5 years. The machine's per year fixed cost is $1,800, and its variable cost is $0.50 per unit. The selling price per unit is $1.50. Marx's tax rate is 34%, and it uses a 16% discount rate. Calculate the accounting break-even point on the new machine, as well as the present value break-even point on the new machine. Difficulty level: DifficultTopic: Present Value Break-Even9-39
Chapter 09 - Risk Analysis, Real Options, and Capital Budgeting89. Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of? Difficulty level: DifficultTopic: Decision Tree90. 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. Difficulty level: DifficultTopic: Sensitivity and Scenarios Analysis91. The market value of an investment project should be viewed as the sum of the standard NPV and the value of managerial options. Explain three different real or managerial options that management may have, what they are, and how they would influence market value.