11. Natasha Spurrier informed Houst

11. Natasha Spurrier informed Houston that all sales reps have laptop computers, so they can
perform capital budgeting analyses for their clients. For example, they could insert data for
their client companies into the models and do both the basic analysis and also sensitivity
analyses, in which they examine the effects of changes in such things as the annual cost savings, the cost of capital, and the tax rate. Therefore, Houston and Spurrier developed the following
“sensitivity questions” which they plan to discuss with the sales reps:
a. Suppose the annual cost savings differed from the projected level; how would this affect
the various decision criteria? What is the minimum annual cost savings at which the system
would be cost justified? Discuss what is happening and, if you are using the Lotus
model, quantify your answers; otherwise, just discuss the nature of the effects.
b. Repeat the type of analysis done in Part a, but now, vary the cost of capital. Again, quantify
your answers if you are using the Lotus model.
c. Repeat the type of analysis done in Part a, but now, vary the tax rate. Again, quantify
your answers if you are using the Lotus model.
d. Would the capability to do sensitivity analysis on a laptop computer be of much assistance
to the sales staff? Can you anticipate any problems that might arise? Explain.