An investment of $80,000 today is expected to give rise to annual contribution of $45,000. This is based on selling one product, a volume of 15,000 units, selling price of $16.50 and variable cost of $12. Annual fixed cost of $11,000 will be incurred for the next four years; the discount rate is 10%. Required: (a) Calculate the NPV of this investment. (b) Calculate the sensitivity of your calculation to the following: i. Initial investment ii. Selling price per unit iii. Variable cost per unit iv. Sales volume v. Fixed costs vi. Discount rate

An investment of $80,000 today is expected to give rise to annual contribution of $45,000. This is based on selling one product, a volume of 15,000 units, selling price of $16.50 and variable cost of $12. Annual fixed cost of $11,000 will be incurred for the next four years; the discount rate is 10%. Required: (a) Calculate the NPV of this investment. (b) Calculate the sensitivity of your calculation to the following: i. Initial investment ii. Selling price per unit iii. Variable cost per unit iv. Sales volume v. Fixed costs vi. Discount rate

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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