The first factor that is important for the analysis of profitability is the exchange rate. The contract explicitly states that the product will be priced in dollars. This is odd as the company is UK based and it conducts its business in pounds (John 2001). Moreover, all the costs that the company will go through, both operational and financial will both be pounds based and this includes an added measure of risk t the company as it will affectively leverage it operationally in case of an exchange rate change (White 2006). An increase in the exchange rate in favor of the dollar will result in a more than proportional increase in the profit of the company as the other costs will remain fixed while the revenue grows. On the other hand, a decrease in the exchange rate will decrease profits by a more than proportional amount to the same reason. Hence the denomination of the price in dollars adds a measure of risk to the company’s operations. A sensitivity analysis in this case would help as it would tell how much the profit of the company would change as a result of the change in exchange rate.
Another factor that merits attention for the same reason is the gross profit percentage, which has been forecasted at a fixed 52% of sales. It seems that this is also a vital assumption as the company has fixed costs in the form of admin costs which will remain same in case the gross margin percentage changes and this could lead to a drastic change in the operating profit of the company. Again, a sensitivity analysis in this regard can help in determining the range of outcomes for the said changes.