Aldersley Ltd is evaluating the investment in new machinery to manufacture Product A. Machine X is...

 

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Aldersley Ltd is evaluating the investment in new machinery to manufacture Product A. Machine X is being considered to manufacture Product A. The following table shows the expected production units of Product A: Year 1 Year 2 Year 3 Year 4 Product A will sell for N$20 per unit and will have variable costs of N$10 per unit. Fixed costs (inclusive of straight-line depreciation of the machine) will be N$90 000 per annum for product A. The unit selling price, all annual fixed and unit variable costs will remain constant over the four-year period. The company has a cost of capital of 10% per annum. Required Product A 19 000 20 000 20 000 19 000 3.1 Calculate the project's sensitivity to: (0) change in cost of capital (ii) (iii) (iv) (v) change in variable cost change in sales volume change in selling change in fixed costs 3.2 Explain the significance of the figures calculated in 3.1 above Marks Sub- total Total 20 20 5 25 Aldersley Ltd is evaluating the investment in new machinery to manufacture Product A. Machine X is being considered to manufacture Product A. The following table shows the expected production units of Product A: Year 1 Year 2 Year 3 Year 4 Product A will sell for N$20 per unit and will have variable costs of N$10 per unit. Fixed costs (inclusive of straight-line depreciation of the machine) will be N$90 000 per annum for product A. The unit selling price, all annual fixed and unit variable costs will remain constant over the four-year period. The company has a cost of capital of 10% per annum. Required Product A 19 000 20 000 20 000 19 000 3.1 Calculate the project's sensitivity to: (0) change in cost of capital (ii) (iii) (iv) (v) change in variable cost change in sales volume change in selling change in fixed costs 3.2 Explain the significance of the figures calculated in 3.1 above Marks Sub- total Total 20 20 5 25

Answer rating: 100% (QA)

To calculate the projects sensitivity to various factors well need to perform sensitivity analysis for each of the specified changes variable cost selling price fixed costs cost of capital and sales v... View the full answer