Accopunting Analysis Essay

1507 Words May 30th, 2013 7 Pages
Tesca Works

Introduction
Michael Burton has recently been hired as the CEO of Tesca Works, Inc. Previously he had been the marketing manager for a large manufacturing company and had established a reputation for identifying new consumer trends. Tesca Works Inc. is a California-based generator manufacturing company. The company is well known for manufacturing large, heavy-duty generators at a reasonable cost. One of its greatest achievements is that its generators can be easily modified or customized for different applications. Also, Tesca Works currently builds commercial appliances.

The company is considering an expansion of its current product line to include refrigerator and maybe, sometime in the future, consumer
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6) Use the average demand scenario to evaluate the sensitivity of the project’s NPV with respect to sale price of the refrigerator and the cost of the compressor.
7) Based on the scenario and sensitivity analysis you performed above, comment on the overall riskiness of the project.
8) Would you recommend that Tesca Works accept or reject the project? What is the basis for your recommendation?
Exhibit 1 Sales Forecasts:
The forecasts are based on projected levels of demand. The firm could face weak, average, and strong demand. All the numbers are expressed in today’s dollars. The forecasted average inflation per year is 3.5%.

|Demand level |Weak |Average |Strong |
|Probability |25% |45% |30% |
|Price per refrigerator |$1,375 |$1,575 |$1,600 |
|Units sold per year |40,000 |42,500 |43,000 |
|Labor cost per refrigerator |$250 | | |
|Parts |$300 |

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