Question: How will you chase between two mutually exclusive projects which do differ in terms of their useful life of operation? A manufacturing firm is considering

How will you chase between two mutually exclusive projects which do differ in terms of their useful life of operation? A manufacturing firm is considering a four-year project with initial outlay of 8,00,000. The scrap value of the asset so created is nil. The firm is expected to sell 2000 units of the output at 1200 per unit. The incremental cost of manufacturing these units is 800 per unit. The firm is enjoying tax exemption during the project life and has 15 percent cost of capital. Using sensitivity analysis, explain whether the project is more sensitive to selling price, sales volume or manufacturing cost?

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