Project Analysis LO1 2 3 4 You are considering a new product

Solution

This is a standard textbook and also a real life financial problem. The short and simple answer is that this is an \"arbitrarily\" chosen variable simply to demonstrate a point - \"Evaluate the sensitivity of your base-case NPV to changes in fixed costs.\" And, yes they could have chosen any number within the stated \"probably accurate to within 10%.\" You could chose to make it +/- 10% of the chosen fixed cost of $380,000; i.e., $418.000 or $342,000, but you will get a Big Fat Zero from your prof. (S)he just wants the answer to the specific question that was asked. My experience at University graduate and post graduate levels (I have 2 degrees: Electrical Engineering; and, Business Administration and Financial Management) taught me to \"just answer the question.\" You must understand that this is a specific problem and the teacher/prof just wants a textbook answer to make marking all of the papers as easy as possible. It is a good idea that you as a student \"think\" and ask these types of questions. However, the main purpose is to teach a \"principle\" of how much, or little, (unforeseen) changes in a given situation \"could\" impact NPV results. If you are really curious and ambitious, you might try writing a computer program that varies the input value(s) of the fixed costs while listing/charting the numerical values and results of the NPV. Or just try calculating a few other fixed cost values out of curiosity. Remember this is just a simple single answer text book question, not a scientific statistical research project. I have a lovely game that I play with my young relatives and the neighbour\'s children. The questions are always asked in a stern and sometimes slightly angry voice: 1. \"What are you doing with my Basketball?\" Much stammering, confusion and even fear. One very bright young man comes by to join in the game. I ask him and he replies simply, \"I am playing with it.\" End of story, and, \"Oh, OK, that\'s nice. I was just asking.\" - Much to the delight of the almost dozen other boys who didn\'t just answer the question. 2. To my nieces who drop bye for lunch: \"Who said you could go into my frig, make a sub, use my deli meat and help yourself to drinks?\" \"Nobody said I could. I decided to and I\'m doing it.\" And, all to good natured laughter. 3. To my employees at work: \"Who said you could wear Hush Puppies to work?\" Or, \"Who said you could wear that Captain Kirk Star Trek costume to work?\" (That was the funniest one?) \"Nobody said I could. And, I didn\'t ask.\" - \"Oh, OK, just asking.\" So, just answer the question. I hope you like my answer and enjoyed my stories. I could never just answer a question in a simple way either. My boss actually hated my replies. \"Why do you always tell me, in detail, how to build a digital watch whenever I ask you simply for the time.\"