Plato Pharmaceuticals Ltd. has invested $300,000 to date in developing a new type of insect repellent. The
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In order to produce the repellent, machinery and equipment costing $520,000 will have to be purchased immediately. The estimated residual value of this machinery and equipment in five years' time is $100,000. The business calculates depreciation on a straight-line basis.
The business has a cost of capital of 12%. Ignore taxes. Use present value factors to four decimals.
Required:
(a) Calculate the net present value of the product.
(b) Undertake sensitivity analysis to show by how much the following factors would have to change before the product ceased to be worthwhile.
(i) The discount rate
(ii) The initial cost of machinery and equipment
(iii) The net operating cash flows
(iv) The residual value of the machinery and equipment. Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... 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... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Related Book For
Financial Management for Decision Makers
ISBN: 978-0138011604
2nd Canadian edition
Authors: Peter Atrill, Paul Hurley
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