Mrs. Thang, the president of ELC, had received the capital budgeting analysis from Ms. Minh for the new CAS the company is considering. Mrs. Minh was pleased with the results, but he still had concerns about the new CAS. ELC had used a small market research firm for the past 20 years. Because of rapid changes in technology, he was concerned that a competitor could enter the market. This would likely force ELC to lower the sales price of its new CAS. For this reason, he has asked Minh to analyze how changes in the price of the new CAS and changes in the quantity sold will affect the NPV of the project.
Thang has asked Minh to prepare a memo answering the following questions:
- How sensitive is the NPV to changes in the price of the new CAS?
- How sensitive is the NPV to changes in the quantity sold of the new CAS?