Intermediate. A company is considering investing in manufacturing equipment that has a three-year life. The purchase price of the equipment is $70000 and at the end of the three-year period it will be sold for cash of $10000. The equipment will be used to produce 6000 units each year of a product which earns a contribution per unit of $7. Incremental fixed costs are expected to be $12000 per annum.

The company has a cost of capital of 8 per cent per annum. Ignore tax. and inflation. Required: Calculate the sensitivity of the investment decision to a change in the cost of capital.