The directors of company ABCD Ltd are planning to invest in a new project that will last
Question:
The directors of company ABCD Ltd are planning to invest in a new project that will last for five years. Following a preliminary analysis of the market, the accountant of the firm has made the following forecast:
Sales Volume (units) per year 100,000 Rs Selling price per unit 85 Variable costs per unit 65 Incremental fixed costs 350,000 Cost of machine 900,000 Scrap value of the machine at end of the project 50,000
The company's cost of capital is 10%.
Required:
(a) Calculate the NPV.
(b) Calculate the sensitivity of the project in relation to:
(i) Sales Volume
(ii) Selling price
(iii) Variable costs
(c) Discuss why it is important to take into consideration risk and uncertainty while appraising a project.
Financial Analysis with Microsoft Excel
ISBN: 978-1285432274
7th edition
Authors: Timothy R. Mayes, Todd M. Shank