Sensitivity analysis Division leaders in JMI’s airplane manufacturing plants have
asked for your analysis for replacing old manufacturing equipment for standard
planes with faster, more costly new equipment next year This year, though
JMI’s innovative S2S-900 has experienced moderate initial success, the total
aircraft sales have not been as great as in the past, and cash flow has been
uneven in this area

You have been asked to use sensitivity analysis in planning
capital budgeting

Division leaders want to know what would happen to expected
cash flows under different discount rates Others want to know how net present
value of the project will vary according to cash flows different from those

Explain exactly how a spreadsheet may be set up to build a
net present value model for the equipment decision What components would be
included in the spreadsheet? How could you perform sensitivity analysis on the
spread sheet?

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