Shelley Couts, the owner of Conch Electronics, had received the capital budgeting analysis from Jay McCanless for the new PDA the company is considering. Shelley was pleased with the results, but she still had concerns about the new PDA. Conch Electronics had used a small market research firm for the past 20 years, but recently the founder of that firm retired. Because of this, she was not convinced the sales projections presented by the market research firm were entirely accurate. Additionally, because of rapid changes in technology, she was concerned that a competitor could enter the market. This would likely force Conch Electronics to lower the sales price of its new PDA. For these reasons, she has asked Jay to analyse how changes in the price of the new PDA and changes in the quantity sold will affect the NPV of the project.
Shelley has asked Jay to prepare a memo answering the following questions.
QUESTIONS
1How sensitive is the NPV to changes in the price of the new PDA?
2How sensitive is the NPV to changes in the quantity sold of the new PDA?