Umunat is considering investing $50,000 in a new machine with an expected The machine will have no scrap value at the end of 5 years. It is expected that 20,000 units will be sold each year at a selling price of $3.00 per unit. Variable production costs are expected to be $10,000 per year. Umunat uses a discount rate of 12% for investment appraisal purposes and expects investment projects to recover their initial investment within 2 years. Required: a. Explain why risk and uncertainty should be considered in the investment appraisal process. b. Calculate and comment on the payback period of the project. C. Evaluate the sensitivity of the project's net present value to a change in the following project variables: ● Sales volume Sales price Variable cost and discuss he use of sensitivity analysis as a way of evaluating project risk. d. Upon further investigation it is found that there is a significant chance that t expected sales volume of $20,000 units per year will not be achieved. The sa manager of Umunat suggests tgat sales volumes could depend on expect economic situations that could be assigned the following probabilities:

Bensington Glass Co. is considering the expansion of it spandrel glass business line. They plan to convert an unused space of their warehouse into additional manufacturing space. They estimate the initial investment will be $7,450,000 and expect the new production to create additional cash flows of $2,925,000 in year's one through ten. If Bensington Glass uses a discount rate of 11%, what is the project's discounted payback period? 4.00 O 3.00 O 3.82 3.16

Courses/88945/quizzes/289708/take Van Nuys Company Year Cash Flow Cost of Capital 12% %24 (7,370) 24 1 4,000 (2,000) 24 24 4,000 (2,000) 24 4,000 24 (2,000) $4 4,000 24 (2,000) 5 $4 4,000 (2,000) 24 24 6. 4,000 24 (2,000)

The X Company is considering the acquisition of a new processor that has an estimated installed cost of $57,000. The processor has an expected life of 5 years and will be depreciated over a 5 year ACRS life to a zero salvage value. However, it is expected that the processor can be sold at that time for $6,000. If purchased, the entire $57,000 would be borrowed at an interest rate of 9%. A capital budgeting analysis results in a positive NPV for the project. An alternative to purchase is to lease the asset for an annual lease payment of $13,500. The lease includes maintenance services estimated to cost Company C $3,000 per year if they were not included in the lease payment. Company C's cost of capital is 11% and its marginal tax rate is 34%. Evaluate the purchase and lease options and make a recommendation of which is preferred.