A company is considering investing in manufacturing equipment that has a three-year life. The purchase price of
Question:
A company is considering investing in manufacturing equipment that has a three-year life. The purchase price of the equipment is $70 000 and at the end of the three-year period it will be sold for cash of $10 000. The equipment will be used to produce 6000 units each year of a product which earns a contribution per unit of $7. Incremental fixed costs are expected to be $12 000 per annum.
The company has a cost of capital of 8 percent per annum. Ignore tax. and inflation.
Required:
Calculate the sensitivity of the investment decision to a change in the 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...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Given in question Purchase price of the Equipment 70000 At the end ...View the full answer
Answered By
Kavya J
am patient, dedicated, and open-minded. I love to help students who are finding the topics difficult in a simple and understandable way. I am conscientious and dedicated. I pay close attention to every detail of the subject. I always try my best to ensure students enjoy themselves while learning. I completed my graduation in Finance & Cost Accounting. In addition, I am a qualified cost and management accountant at the intermediate level and am currently pursuing cost and management accounting at the final level. I am well-versed in costing, accounting, taxation, direct and indirect taxation, strategic financial management, and operating management.
0 Reviews
10+ Question Solved
Related Book For 
Question Posted:
