A real simple way to see sensitivity analysis is with a perpetuity. Suppose that Gunney Highway...

A real simple way to see sensitivity analysis is with a perpetuity. Suppose that Gunney Highway Corporation is creating a new line of night vision goggles. The cost of the project today is $12.00 million. The project cash flow estimate is as follows:

Year 1 Financial Data:
Sales:	$2,041,969.00
COGS:	49.00% of sales
Depreciation:	$1,000,000.00

The tax rate is 39.00%, while the cost of capital is 10.00%. Cash flows will have a growth rate of 0.00% going forward.

a) What is the NPV of the project?

b) If we increase yearly sales by 10%, what is the resulting NPV for the project?

Expert Solution

jeff jeffy answered 1 year ago

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