Financial Assignment

Case 3 - Additional project analysis

Using the capital budgeting analysis from case 2, conduct additional analysis as follows:

1. Break even points

a. Calculate three break-even points (not counting those you have already calculated - i.e., the payback period and internal rate of return) that are meaningful for understanding the project.

b. Discuss briefly each of these break-even points and the insights and implications each provides about the proposed project.

2. Analyze an additional scenario for the project.

a. Using the analysis from case 2 is the "expected" scenario, describe and analyze at least one additional scenario. The description should provide a rationale for adjusting assumptions from the "expected" as appropriate for the scenario.

b. Identify the new assumptions applicable to the additional scenario.

c. Determine the NPV of the project in the additional scenario.

d. Briefly discuss insights and implications for the project.

3. Conduct a sensitivity analysis for the project.

a. Determine the sensitivity of project NPV to changes in at least six assumptions, one of which must be from the initial investment, four must affect operating cash flows, and one must affect the discount rate.

b. Discuss your findings about the relationship between the assumptions tested and project value.

4. Run a Monte Carlo simulation.

a. Introduce appropriate randomness into at least five assumptions or cash flow line items.

b. Generate 50 different outcomes (NPV) for the project reflecting the introduced randomness.

c. Summarize the findings.

d. Briefly discuss insights and implications for the project.

You can turn this case in together with case 2 or separately.

Deliverables are:

(1) a computer file with the spreadsheet containing the analysis. (You may want to conduct the simulation in a separate spreadsheet or workbook. If you do, please submit that as well.)

and

(2) a written document that discusses the results of the additional analyses and the information obtained. The written discussion could be a revision of the write-up from the prior cases or submitted as a separate document dealing only with the information from this case. (You will at some point prepare a single written document for the entire case.)

The written submission specifically for this case is limited to three pages. You may include as many additional pages of exhibits and attachments as you like. Exhibits and attachments may contain text discussion or table and charts. Each attachment or exhibit must be referenced in the main text.

All information in both the spreadsheet and written discussion must be well-organized, accessible, and reviewed to eliminate errors. Tables or charts included in exhibits or appendices must be clearly labeled so as to be easily understood.