1 1(a) 1(b) Jonkin plc are considering a project that is susceptible to risk. An initial investment of £1,300,000 will be followed by six years with the following 'most likely' cash flows (there is no inflation or tax): Annual Sales (volume of 300,000 units multiplied by estimated sales price of £4) Annual Costs Labour Materials Other £ ■ 750,000 100,000 50,000 the sales price; the labour costs; £ 1,200,000 The initial investment of £1,300,000 in machinery and equipment has an estimated residual value of £400,000 at the end of the six-year life of the project. The company calculates depreciation on a straight-line basis. The cost of capital is 8%. (900,000) 300,000 Calculate the net present value of the project. Undertake sensitivity analysis to show by how much the following factors would have to change before the project ceased to be worthwhile: the discount rate; the material costs; and the residual value of the machinery and equipment.
1 1(a) 1(b) Jonkin plc are considering a project that is susceptible to risk. An initial investment of £1,300,000 will be followed by six years with the following 'most likely' cash flows (there is no inflation or tax): Annual Sales (volume of 300,000 units multiplied by estimated sales price of £4) Annual Costs Labour Materials Other £ ■ 750,000 100,000 50,000 the sales price; the labour costs; £ 1,200,000 The initial investment of £1,300,000 in machinery and equipment has an estimated residual value of £400,000 at the end of the six-year life of the project. The company calculates depreciation on a straight-line basis. The cost of capital is 8%. (900,000) 300,000 Calculate the net present value of the project. Undertake sensitivity analysis to show by how much the following factors would have to change before the project ceased to be worthwhile: the discount rate; the material costs; and the residual value of the machinery and equipment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can you tell me how to work out question 1 without the use of excel ? Thank you in ad
Transcribed Image Text:1
1(a)
1(b)
Jonkin plc are considering a project that is susceptible to risk. An initial
investment of £1,300,000 will be followed by six years with the following 'most
likely' cash flows (there is no inflation or tax):
Annual Sales (volume of 300,000 units multiplied
by estimated sales price of £4)
Annual Costs
Labour
Materials
Other
■
£
■
750,000
100,000
50,000
the sales price;
the labour costs;
£
The initial investment of £1,300,000 in machinery and equipment has an
estimated residual value of £400,000 at the end of the six-year life of the project.
The company calculates depreciation on a straight-line basis. The cost of capital
is 8%.
1,200,000
Calculate the net present value of the project.
Undertake sensitivity analysis to show by how much the following factors would
have to change before the project ceased to be worthwhile:
the discount rate;
(900,000)
300,000
the material costs; and
the residual value of the machinery and equipment.
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