Question
In: Finance
You are considering buying a corner snow cone business for $100,000. As a conservative business person,...
You are considering buying a corner snow cone business for
$100,000. As a conservative business person, you assume zero
salvage value at the end of the project. You assume annual sales of
12,000 snow cones per year. The price of a snow cone in year 1 is
$5.00/ea. Operating costs are estimated to be $8,000/yr. The
project evaluation life is 3 years, and the minimum rate of return
is 15%.
(a) Conduct a single-variable sensitivity analysis of the
project, looking specifically at the net present value and rate of
return. Assume there is potential variation in the capital cost of
15%. Depending on the weather, your annual sales may vary by as
much as 10% and operating costs as much as 7%.
(b) Summarize your results using tornado charts.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You work for a snow cone company. You've collected data on monthly sales (S, number of...
You work for a snow cone company. You've collected data on
monthly sales (S, number of snow-cones per month) and the price of
your regular-size snow-cone (P, in dollars), as well as the daily
average summer temperature in your most popular market (T, in
degrees Fahrenheit). You estimate the following regression
model:
S = a + bP + cT.
In your regressions, you usually look for a 10%-or-better level
of confidence.
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