Consider the following investment project with a useful life of 8 years. The marketing department estimates that 10,000 units of the proposed product can be sold per year.
Initial Investment: $250,000
Salvage Value: $25,000
Revenues per unit $12
Expenses per unit $6
a. Verify that the project is economically attractive (before-tax) at a 12% MARR with a useful life of 8 years. Answer: PW = $58,153.50, so yes, economically attractive since PW>0.
b. Determine whether this decision is more sensitive to a change in the estimated number of units sold per year or to a change in the initial investment. Answer: More sensitive to a change in the # of units. Can only take a 19.5% decrease in the # of units before decision changes; can take a 23.3% increase in the initial investment before the decision changes.