Question 1 YUKAA PLC is considering a project with the following most likely cash flows Years Purchase
Question:
Question 1
YUKAA PLC is considering a project with the following most likely cash flows
Years Purchase Running Savings costs costs
K’000 K’000 K’000
0 (7,000)
1. 2,000 6,000
2. 2,500 7,000
The cost of capital for the project is 8%.
Required:
- Measure the sensitivity (in percentages) of the project to changes in the levels of expected costs and savings.
- Suggest the possible drawbacks of sensitivity analysis
Question 2
Lenco Ltd has begun to produce a new product, called Sigma for which the following cost estimates have been made:
K'000 | |
Direct Materials | 27 |
Direct Labour (5 hrs@K6000) | 30 |
Variable production Overheads (5hrs at K2,500) | 25 |
Total variable cost | 82 |
Production fixed overheads are budgeted at K30 million per month and budgeted direct labour hours are 25,000 per month. The absorption rate will be based on labour hours. The company wishes to make a profit of 20% on full production cost from product Sigma.
Required
- Ascertain the full cost-plus based price.
- Ascertain the marginal cost-plus based price