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Question
Consider the feasibility study shown in the table. You have been advised that sales revenues may be 10 percent lower and/or development costs may be 10 percent higher. Performing a sensitivity analysis, you conclude:
| Total sales revenue | $ | 10,000,000 | |
| Less: Development cost | 6,000,000 | ||
| Less: Land asking price | 1,000,000 | ||
| Potential gross profit | $ | 3,000,000 | |
| Less: Admin., legal, commissions, etc. | 1,500,000 | ||
| Potential net profit | $ | 1,500,000 | |
A) A 10 percent decrease in sales revenues would have a bigger impact on returns than a 10 percent increase in development costs
B) A 10 percent increase in development costs would have a bigger impact on returns than a 10 percent decrease in sales revenues
C) A 10 percent increase in development costs and a 10 percent decrease in sales revenues would have opposite impacts on returns, canceling each other out and having no impact on returns
D) Both factors would have such a small impact, that there is no reason to be concerned about either a 10 percent increase in development costs or a 10 percent decrease in sales revenues
Answer
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$
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