Question 4 (25 marks)

ABC Company is considering a project that has the following information:

Initial investment	N$3 000 000
Life span	5 years
Depreciation	Straight line
Sales volume per year	240 000 units
Selling price per unit	N$40
Fixed costs excluding depreciation per year	N$300 000
Variable cost per unit	N$30
Scrap value	Nil
Cost of capital	11%
Taxation	28%

Required:		Mark
		Sub- Total	Total
Calculate t i)	he sensitivity of the investment to the following: Selling price
ii)	Sales volume
iii) iv) v) vi)	Variable cost Fixed costs. Cost of capital To which of the variables is the project more sensitive to and why?	25	25
Total		20