The following cash flows have been estimated for a capital expenditure project: Cost of equipment (year 0) $100,000 Revenues (years 1-5) $50,000 each year Running costs (years 1-5) $20,000 each year Project duration 5 year Cost of capital 10% The NPV of the project is +$13,700. REQUIRED Which of the following variables is most sensitive with regard to the overall financial risk of the project? Explain your answer and Show your calculations. 1. Cost of equipment 2. Revenues 3. Running costs 4. Duration
The following cash flows have been estimated for a capital expenditure project: Cost of equipment (year 0) $100,000 Revenues (years 1-5) $50,000 each year Running costs (years 1-5) $20,000 each year Project duration 5 year Cost of capital 10% The NPV of the project is +$13,700. REQUIRED Which of the following variables is most sensitive with regard to the overall financial risk of the project? Explain your answer and Show your calculations. 1. Cost of equipment 2. Revenues 3. Running costs 4. Duration
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4CMA: Foster Manufacturing is analyzing a capital investment project that is forecast to produce the...
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The following cash flows have been estimated for a capital expenditure project:
Cost of equipment (year 0) $100,000
Revenues (years 1-5) $50,000 each year
Running costs (years 1-5) $20,000 each year
Project duration 5 year
Cost of capital 10%
The
REQUIRED
Which of the following variables is most sensitive with regard to the overall financial risk of
the project? Explain your answer and Show your calculations.
1. Cost of equipment
2. Revenues
3. Running costs
4. Duration
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