A project requires an initial investment of $150 000 and has an expected life of five years.
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Question:
A project requires an initial investment of $150 000 and has an expected life of five years. The required rate of return on the project is 12 percent per annum.
The project’s estimated cash flows each year are as follows:
..........................................$000
Sales revenue ....................101
Variable costs .......................30
Incremental fixed costs ..........5
The selling price, costs and activity levels are expected to remain the same for each year of the project. Ignore taxation and inflation.
Required:
Calculate the percentage change in the selling price that would result in the project being rejected.
Expert Answer:
IC INITIAL CASH FLOW 2500000 R ANNUAL CASH FLOW A Annual Volume of Production in units 150000 B Sell... View the full answer
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