9. A company is considering a £70,000 investment in a machine that would produce 10,000 items per year for 3 years before being sold for £10,000; these would incur £7 of variable costs and sell for £12 each. Extra fixed costs incurred would be £23,000 pa. Adrian has 10% cost of capital and has calculated the NPV to be £4,632. Tax can be ignored. What is the sensitivity of the decision to changes in the estimate of sales volume? A) 1.6% B) 2.7% C) 3.7% D) 6.9%
9. A company is considering a £70,000 investment in a machine that would produce 10,000 items per year for 3 years before being sold for £10,000; these would incur £7 of variable costs and sell for £12 each. Extra fixed costs incurred would be £23,000 pa. Adrian has 10% cost of capital and has calculated the NPV to be £4,632. Tax can be ignored. What is the sensitivity of the decision to changes in the estimate of sales volume? A) 1.6% B) 2.7% C) 3.7% D) 6.9%
Chapter6: Proudction Costs
Section: Chapter Questions
Problem 8SQP
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9. A company is considering a £70,000 investment in a machine that would produce 10,000 items per year for 3 years before being sold for £10,000; these would incur £7 of variable costs and sell for £12 each. Extra fixed costs incurred would be £23,000 pa. Adrian has 10% cost of capital and has calculated the
What is the sensitivity of the decision to changes in the estimate of sales volume?
A) 1.6%
B) 2.7%
C) 3.7%
D) 6.9%
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