Project A has the following estimated cash flows and present values: Year Cash flow $ Discount factor@ 12% Present value $ 0 Cost (95 000) 1.0 (95 000) 1–5 Contribution per annum 50 000 3.605 180 250 1–5 Fixed costs per annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 Required: Calculate the sensitivity of the investment decision to a change in the annual contribution.

Project A has the following estimated cash flows and present values: Year Cash flow $ Discount factor@ 12% Present value $ 0 Cost (95 000) 1.0 (95 000) 1–5 Contribution per annum 50 000 3.605 180 250 1–5 Fixed costs per annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 Required: Calculate the sensitivity of the investment decision to a change in the annual contribution.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 8P

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Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
A project which requires an investment of OMR 18,000, duration of the project is 2 years, average net cash inflows were OMR 12,000 and annual variable cost is OMR 8,000. Assuming a discount rate at 12%, evaluate the sensitivity of Initial Investment influencing NPV with above information. Select one: O A. 11.25% B. 12.67% O C. 16.87% D. 6.75%
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