Project Returns

 

Mike has set up a new company and estimates that the cost of capital is 10%. His first project involves investing in $100,000 of equipment with a life of 10 years and a final scrap value of $10,000.
The equipment will produce 10,000 units p.a. generating a contribution of $2 each. He estimates that additional fixed costs will be $10,000 p.a.


Determine, on the basis of the above figures, whether the project is worthwhile
(4 Marks)
Calculate the sensitivity to change of:    
The initial investment
The sales volume p.a.
The contribution p.a.
The fixed costs p.a.
The scrap value
The cost of capital