The company's current cost of capital is 10 per cent which it sees as an appropriate...

 

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The company's current cost of capital is 10 per cent which it sees as an appropriate discount rate for this proposed venture. All cash flows apart from the purchase of the equipment can be assumed to occur at the end of the year. The straight-line depreciation method is used to calculate annual depreciation charge. Required: a) Calculate the net present value of the proposed investment in the Canada goose decoy. b) Evaluate the sensitivity of the net present value of this investment to a 15% reduction in sales volume, a 10% reduction in sales price, and a 12% increase in labour and material costs, individually and collectively, Scenario Analysis. using c) Calculate the break-even point for sales volume, sales price per unit, labour cost per unit, and material cost per unit, individually and collectively, using the Zero-NPV approach, and critically evaluate the outcomes of this analysis. d) Using the information available discuss whether Milles Ltd should progress with the investment opportunity. Your answer must include a discussion of the advantages and disadvantages of Sensitivity Analysis in assessing capital investment risk. The company's current cost of capital is 10 per cent which it sees as an appropriate discount rate for this proposed venture. All cash flows apart from the purchase of the equipment can be assumed to occur at the end of the year. The straight-line depreciation method is used to calculate annual depreciation charge. Required: a) Calculate the net present value of the proposed investment in the Canada goose decoy. b) Evaluate the sensitivity of the net present value of this investment to a 15% reduction in sales volume, a 10% reduction in sales price, and a 12% increase in labour and material costs, individually and collectively, Scenario Analysis. using c) Calculate the break-even point for sales volume, sales price per unit, labour cost per unit, and material cost per unit, individually and collectively, using the Zero-NPV approach, and critically evaluate the outcomes of this analysis. d) Using the information available discuss whether Milles Ltd should progress with the investment opportunity. Your answer must include a discussion of the advantages and disadvantages of Sensitivity Analysis in assessing capital investment risk.

Answer rating: 100% (QA)

Answer Lets break down each part of your analysis a Calculate the net present value NPV To calculate ... View the full answer