1. Do a qualitative size-up for Li. 2. If Li decided to invest, which financing option do you think is more appealing?
3. Fixed costs are not directly related to the level of production. Variable costs change in direct
relation to volume of output. Assume the relationship is linear, what would the total variable
cost be in the worst-case scenario?
4. Calculate the monthly mortgage payment forli.
5. If Li used a mortgage to finance, what would be the net cash flow, net income, ROI, payback
period and break-even point of this project in the best, medium and worst-case scenarios,
respectively?
6. Would different financing-for example, 50-50 ownership-change your answers to question 5?
7. If Li had a required rate of return of 6 percent on this investment, what are the net present
values of the best, medium, and worst-case scenarios, respectively? (Assume Li used the option
of mortgage financing)
8. What is the sunk cost? Suppose Li had already paid $10,000 for the proiect, and then she found