GM506 Unit 8 Second Plant Sensitivity Analysis Example

Course	GM506 Strategic Financial Analysis
Unit	Unit 8
Paper type	Sensitivity analysis
Length	About 960 words, 6 pages double-spaced
Format	APA 7 student paper
School	Purdue University Global
Program	MS in Management
Updated	October 2026

Free sample paper for GM506 Unit 8

Only One Input Can Sink the Plant Alone: A Unit 8 Sensitivity Analysis of a Second Truss Plant

[Student Name]

Purdue University Global

GM506: Strategic Financial Analysis

Unit 8 Sensitivity Analysis

[Instructor Name]

[Date]

Haddon Truss and Panel, the project and every figure are composite and illustrative, computed in the project's model; the sources cited are real.

What this part is doingLeading with the one input that can reverse the result tells the owners where to focus their attention.

The Base Case

The appraisal in Unit 5 valued the plant at roughly $8.6 million above its cost at the 10.5 percent hurdle, using eight assumptions. This analysis takes six of them and moves each across a range the case supports, holding the others at their base values. Corporate finance texts recommend this kind of one-at-a-time sensitivity analysis to find which assumptions deserve the most attention before a project is approved (Brealey et al., 2023), and surveys find it among the techniques financial executives use most often alongside net present value (Graham & Harvey, 2001).

Exhibit 1: The Tornado Chart

The tornado chart ranks the six inputs by how far each moves net present value across its range, widest bar at the top.

Mature revenue, from $12.0 million to $19.0 million a year. Net present value runs from about minus $1.7 million to plus $12.7 million, a spread of $14.4 million. The low end reflects the sales manager's estimate if only half of the expected new metro builders sign on; the high end reflects metro permit growth continuing at its recent pace.

Contribution margin, from 26 to 34 percent. Net present value runs from about $3.4 million to $13.7 million. The low end reflects lumber costs rising faster than prices; the high end reflects the home plant's best recent year.

Hauling saved, from $0.6 million to $1.8 million a year. Net present value runs from about $3.1 million to $12.5 million. The range reflects uncertainty about how many current distant jobs would actually move to the new plant.

Plant fixed costs, from $2.8 million down to $2.0 million. Net present value runs from about $6.2 million to $12.5 million.

Discount rate, from 11.5 down to 9.5 percent. Net present value runs from about $5.7 million to $12.2 million.

Construction cost, from 15 percent over budget to 5 percent under. Net present value runs from about $6.0 million to $9.4 million.

Five of the six inputs leave the plant worth building at the bad end of their range; only a shortfall in metro revenue can make it a loss on its own.

What this part is doingThe highlighted sentence summarizes the tornado chart's message in decision terms, which is what the owners need from it.

The Break-Even Revenue

Holding every other input at its base value, the plant's net present value reaches zero when mature revenue falls to about $12.85 million a year, about 24 percent below the $17.0 million base case. That figure is the most useful single number in this analysis, because the owners can test it against something they can observe: how much work metro builders are willing to commit to before construction begins.

Exhibit 2: Revenue and Margin Together

Because revenue and contribution margin both depend on the metro market, they may move together: a weaker market would bring both less work and more price pressure. The grid crosses four levels of mature revenue with three levels of contribution margin.

At $12.0 million of revenue, net present value is about minus $5.4 million at a 26 percent margin, minus $1.7 million at 30 percent and plus $1.9 million at 34 percent.

At $14.5 million, it is about minus $1.0 million at 26 percent, plus $3.4 million at 30 percent and plus $7.8 million at 34 percent.

At the base revenue of $17.0 million, it is about $3.4 million, $8.6 million and $13.7 million.

At $19.0 million, it is about $6.9 million, $12.7 million and $18.5 million.

Four of the twelve cells are negative, all in the two lowest revenue rows. The plant loses value only when revenue falls well below the base case and margin is at or below the base level at the same time, or when revenue falls very far.

What this part is doingCrossing the two linked inputs shows where the real downside lies, which a one-at-a-time analysis would understate.

A Combined Downside Case

A realistic bad case moves three inputs together. Mature revenue reaches only $14.0 million, because two of the expected metro builders sign with a competitor. Contribution margin falls to 27 percent, because those builders' absence forces price concessions to win others. And construction costs run 15 percent over budget, as the contractor's estimate warns is possible in a tight labor market. Combined, they leave the plant about $3.4 million short of its cost in present value.

Each element contributes. Lower revenue alone would leave about $2.4 million of value. The lower margin on that smaller revenue removes about $3.2 million more, taking the plant to about minus $0.8 million. The construction overrun then adds a further loss of about $2.6 million in present value. The combination is not the worst imaginable case, but it is plausible, and it is the case the owners should be prepared to survive.

What This Means for the Decision

Tim Koller and colleagues advise that sensitivity analysis should lead to actions that reduce the risk of the most important assumptions, not merely to a list of numbers (Koller et al., 2020). Here the action is clear. Before committing construction money, Haddon should secure written commitments from metro builders for enough volume to put mature revenue comfortably above the break-even of about $12.85 million. If builders will not commit, that unwillingness is itself evidence about the input that matters most.

Limits

The ranges are judgments drawn from the case, not statistical estimates. The analysis holds the terminal growth rate at 2 percent throughout, though a weak metro market might also slow long-run growth. And it does not model the effect of the new plant on the home plant's own revenue beyond the hauling saved.

References

Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.

Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7

Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.

The Purdue Global GM506 Unit 8 instructions

In GM506's eighth unit you test how an investment's value responds to its assumptions. Start from the base case and choose the inputs that matter, each with a range drawn from the case and a reason for its endpoints. Move each across its range while holding the others fixed, and rank them in a tornado chart by how far net present value moves. Compute the break-even for the most important input. Because some inputs move together, build a two-way grid crossing the two most closely linked ones and mark the negative cells. Then describe a combined downside case that moves several inputs at once, and explain each element's contribution. Translate the findings into an action, such as a condition the decision makers can check before committing. Note the limits of judgment-based ranges. Two exhibits carry a paper of about five pages, with its methods sources listed in APA 7.

How this GM506 Unit 8 example is built

The analysis restates the $8.6 million base case and cites Brealey, Myers and Allen and Graham and Harvey on sensitivity analysis. The tornado chart ranks six inputs with their reasoned ranges: revenue, contribution margin from 26 to 34 percent, hauling saved from $0.6 million to $1.8 million, fixed costs, the discount rate and construction cost from 5 percent under to 15 percent over. The highlighted sentence states that only revenue can reverse the result alone. Break-even revenue of about $12.85 million is presented as an observable test. The grid crosses four revenue levels with three margins and marks four negative cells. A combined downside of $14.0 million of revenue, a 27 percent margin and a 15 percent overrun reaches about minus $3.4 million, with each step quantified. Koller and colleagues' advice turns the result into a condition on builder commitments, and limits close the analysis.

GM506 Unit 8 rubric: what earns full points

Points on this GM506 analysis go to well-argued ranges, correct ranking and a clear decision rule. Instructors check that each range has a stated basis in the case rather than an arbitrary percentage. The tornado chart should rank inputs correctly, and the break-even for the dominant input earns significant credit because it gives decision makers something observable to test. A two-way grid for linked inputs shows awareness that assumptions do not move independently. A combined downside case with each element explained demonstrates realistic risk thinking. The strongest analyses convert the findings into an action or condition rather than ending with numbers. Brealey, Myers and Allen, Koller and colleagues and Graham and Harvey's survey supply the methods and context in APA 7, and limits of judgment-based ranges should be acknowledged.

GM506 Unit 8 help: mistakes that cost points

GM506 Unit 8 analyses often move every input by the same percentage, which hides which assumptions are actually uncertain. Others present a tornado chart without a break-even, leaving managers to guess where the danger lies. A frequent gap is treating linked inputs as independent, so the combined effect of a weak market on both revenue and margin is missed. Downside cases are sometimes worst-imaginable rather than plausible, which makes them easy to dismiss. Many papers stop at the numbers. Give each input a range grounded in the case, rank them, compute the break-even for the input that matters most, cross the linked inputs in a grid, build one plausible downside and explain each part of it, then state the condition the owners should insist on before committing money.

Get a GM506 Unit 8 example written to your instructions

Send the base model or appraisal built in an earlier unit, the Unit 8 prompt and the rubric. We return a free first sensitivity analysis on it in 24-48h, with ranges argued from your case, the swing of each input charted, and the assumption your decision leans on named in plain terms. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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GM506 Unit 8 questions, answered

Is scenario analysis the same as sensitivity analysis?

Not quite. Sensitivity moves one input or two at a time to see which matter; scenarios move several together to describe a coherent future. Most prompts in this unit want sensitivity first, and many welcome one or two scenarios afterward. Labeling which is which avoids a confusion that instructors tend to note in the margin.

Should Monte Carlo simulation be used?

Only if the prompt asks or the section has covered it. Simulation needs a probability distribution for each input, and invented distributions can lend false precision. For most assignments, argued ranges, a ranking and a two-way grid communicate the risk to a manager more clearly than a histogram of thousands of runs.

How should the finding be stated for managers?

As a condition in plain words: the project creates value if mature revenue stays above a stated figure, and here is what is known about the odds of that. A manager can act on a condition. A list of percentage changes in net present value leaves the translation to the reader, who may not attempt it.

Where can I find a free GM506 Unit 8 sample paper?

This page carries a full GM506 Unit 8 sensitivity analysis of a second truss plant, with a six-input tornado chart, a revenue break-even, a revenue and margin grid, a combined downside case and APA 7 references.

What is the break-even revenue for the new plant?

About $12.85 million a year at maturity, roughly 24 percent below the $17.0 million base case. Holding every other assumption at its base value, the plant's net present value reaches zero at that level of revenue.