Project Risk Analysis -Sensitivity Analysis

Project Risk Analysis -Sensitivity Analysis. HMG is considering the manufacture of a new chemical compound that is used to make high-pressure plastic containers. An investment of $4 million in plant and equipment is required. The firm estimates that the investment will have a five year life, using straight-line depreciation towaard a zero salvage value. However, the investment has an anticipated salvage equal to 10% of its original cost. The number of pounds of the chemical compound that HMG expects to sell over the five year life of the project are as follows (in millions): 1, 1.5, 3, 3.5, and 2. To operate the new plant, HMG estimates that it will incur additional fixed cash operating expenses of $1 million per year and variable operating expenses equal to 45% of revenues. Furthermore, HMG estimates that it will need to invest 10% of the anticipated increase in revenues each year in net working capital. The price per pound for the new compound is expected to be $2 in Years 1 and 2, then $2.50 per pound in Years 3 through 5. HMG’s tax rate is 38%, and it requires a 15% rate of return on its new product investments.

a. What are the key sources of risk that you see in this project?

b. Use the “goal seek” function within Excel to find the breakeven values for each of the following variables: the initial CAPEX, the working capital percentage of revenue growth, variable cost % of sales, and sale volume

c. Which of the variables analyzed in part b do you think is the greatest source of concern? What, if anything, could you do to reduce the risk of the project?

d. Should you always seek to reduce project risk?

 

To prepare for this assignment:

• Review the textbook’s coverage of unipolar depression in Chapter 8.
• Review the articles, “Assessment of Childhood Depression” and “Pediatric Antidepressant Use After the Black-Box Warning,” paying particular attention to the discussion of antidepressant use in children and adolescents, as well as associated risk factors and alternative treatment methods.
• Review the abstract of the article from the Journal of the American Medical Association (JAMA) that includes a meta-analytic review of randomized clinical trials of antidepressant use with children and adolescents.
• Access and review the article “Epidemiology of Depression and Suicide” listed in the Learning Resources, focusing on the section titled “Age-related demographics.”
• Watch the PBS NewsHour segment on the risk of suicide in adolescents who are taking antidepressant medications. The link to this video segment is included in the required Learning Resources list.

The assignment: (1–2 pages)

• Based on your review of these materials, appraise the current research evidence regarding suicide risks associated with the use of antidepressant medications in the treatment of depression in children and adolescents. In your response, answer the following questions:
• • What preconceptions, if any, did you bring to this controversial issue, perhaps based on your personal experiences or the experiences of family members, friends, or other loved ones?
  • Evaluate the materials related to antidepressant use in children and adolescents. What did you find surprising? What did you find disturbing? What other reactions did you have to these materials?
  • What are your now more informed thoughts about this controversial issue? Should these medications continue to be used with depressed children and adolescents? Why or why not? What alternative treatments might you consider? Explain and justify your stance on this issue.

Support your Application Assignment with specific references to all resources used in its preparation. You are asked to provide a reference list only for those resources not included in the Learning Resources for this course.