HMT Co is considering a project with the following cash flows.Year Initialinvestment costcashinflowsNet cashflowsVariable(000) RO.(000) RO. (000) RO. (000) RO.6,0003,0007,0004,00023,0007,0004,000Cash flows arise from selling 750,000 units at RO.12 per unit. HMT Co has a cost of capital of 9%.You are required to calculate the sensitivity % of the variable initial investment.a. 17.27%b. None of the optionsc. 18.27%d. 16.27%

Sensitivity of a project Sensitivity of a project shows in percentage that how much ONE variable…

Answered: You are required to calculate the…

You are required to calculate the sensitivity % of the variable initial investment. a. 17.27% O b. None of the options c. 18.27% d. 16.27%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

HMT Co is considering a project with the following cash flows.
Year Initial
investment cost
cash
inflows
Net cash
flows
Variable
(000) RO.
(000) RO. (000) RO. (000) RO.
6,000
3,000
7,000
4,000
2
3,000
7,000
4,000
Cash flows arise from selling 750,000 units at RO.12 per unit. HMT Co has a cost of capital of 9%.
You are required to calculate the sensitivity % of the variable initial investment.
a. 17.27%
b. None of the options
c. 18.27%
d. 16.27%

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