Take Five Systems, a new start-up, is developing a new iPhone application (“app”) and provides you...

Take Five Systems, a new start-up, is developing a new iPhone application (“app”) and provides you with the following assumptions:

Development and testing of the new app will take four months. Month five is the first month of revenue generation.
Initial monthly app sales of 5,000 downloads at a price of $2.99
Unit sales will grow at 15% per month for months six through twelve and then will be flat thereafter
The app will become obsolete and will need to be revised/replaced after month 18

Take Five Systems is concerned about the accuracy of their revenue estimates in Question 1. Specifically, they wish to use sensitivity analysis to evaluate the impact on Month 18 revenue of the following:
1. Variations in 2% increments between 9-21% in the growth rate of unit sales in Months 5-12 (that is, 9%, 11%,..., 19%, 21%)
2. Variationin500unitincrementsbetween2,500and7,500inthelevelofinitial sales (that is, 2,500, 3,000,..., 7,000, 7,500)

Expert Solution

Please see below table for 18th month revenue in the base scenario and in the sensitivity scenarios (1 and 2)

jeff jeffy answered 3 months ago

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