Corrected Question 3 (25 marks) 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. Product A 19 000 20 000 20 000 19 000 The machine under consideration will cost N$310 000 and it will have a residual value of N$30 000 after 4 years of use. The company has a cost of capital of 10% per annum. Required Calculate the project's sensitivity to: (i) change in cost of capital (ii) change in variable cost (iii) change in sales volume (iv) change in selling (v) change in fixed costs 3.2 Explain the significance of the figures calculated in 3.1 above Total 3.1 Marks Sub- total 20 5 25 Total 20 25

Question 3 (25 marks) Aldersley Ltd is evaluatine the imvestment 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: 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 NS90 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 machine under consideration will cost NS310 000 and it will huve a residual value of N530 000 after 4 vears of use. The company has a cost of capital of 10% per annum