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Exampe 3! Scenario Analysis Scenario analysis is used to determine the range of possible outcomes for a project. Typically, the base case, best case, and worst case values are calculated when doing scenario analysis. Because of the repetitive nature of the calculations, spreadsheets are an excellent tool for doing the analysis. Consider the values presented in the example in the textbook: Base case Best case 6,000 Worst case 5,500 $ 80 7,000 80 Unit sales: Price per unit Variable costs per unit: Fixed costs per year: 50,000 $ 50,000 50,000 $ 200,000 $ 200,000 200,000 Initial cost: Project life (years): Required rrtum: Tax rate: 12% 129 12% 34% 34% With these values, we need to calculate the base case, best case, and worst case NPVs and IRRs. First, we want to calculate the NPV and IRR with the base case projections, which are: Base Case income Statement Sales Variable costs Fixed costs Depreciation EBIT Taxes Net income Worst Case Income Stotement Best Case Income Stotement 480,000 Sales $ 440,000 Sales 360,000 Variable costs 330,000 Variable costs 50,000 Fixed costs 50,000 Fixed costs 40,000 Depreciation 40,000 Depreciation 30,000 EBIT $ 20,000 EBIT 10,200 Taxes 6.900 Taxes 19,800 Net income $ 13,200 Net income $ 560,000 420,000 50,000 40,000 $ 50,000 17,000 $ 33,000 $ OCF 59,800 OCF $ 53,200 OCF $ 73,000 NPV 15,566 INP $ 18,226) NPV IRR IRR

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