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Question
| 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 |
Refer to the information in the previous question. 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:
(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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Related questions
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If sold next year Sale price
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