Canuck Enterprises Limited (CEL) is considering investing in a new machine with the following cash flow data:

Question:

Canuck Enterprises Limited (CEL) is considering investing in a new machine with the following cash flow data:
Year New Machine Cash Year
Flows ($ thousands)
0 ............................. (900)
1 ............................. 300
2 ............................. 300
3 ............................. 300
4 ............................. 300
CEL enjoys a 10% Required:
(a) What is the NPV of the proposed investment in the new machine?
(b) By how much would the price paid for the machine have to change to cause the investment to have a zero NPV?
(c) By how much would the have to change to cause the investment to have a zero NPV?
(d) Assuming they are to remain equal for all years, by how much would the annual cash inflows have to change to cause the investment to have a zero NPV?
(e) State any conclusions you can make from your sensitivity analysis.
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...