10. The following exhibit contains Beech's estimates of demand, price, and fixed and variable
costs for the Starship under three alternative economic forecasts.
Variable (per year)
Demand
Price
Fixed cost
Variable cost
*Dollars in millions
Pessimistic
50
2
22
1.75
Normal
75
2.7
15
1.50
Optimistic
125
3.2
7
1.0
a. If all other variables are assumed to be at their expected value (normal forecast), how
sensitive is the project's NPV to changes in fixed cost? Use a cost of capital of 10%, tax
rate of 35%, and project life of 10 years.
b. How sensitive is the project's NPV to changes in price?
c. How sensitive is the project's NPV to changes in variable cost?
d. Which factor seems most important to the success of the plane?
e. Is the Starship a risky project? Explain.
must decide to sell or store before observing period two price. If you do not drill in