Greene plc has the opportunity to invest in plant for the manufacture of a new product, the demand for which is estimated to be 5000 units a year for five years. The following data relate to the decision:

l The machine is estimated to cost £50 000 (payable immediately) and to have no residual value.

l The selling price per unit is planned to be £10.

l Labour and material costs are estimated to be £4 and £3 per unit respectively.

l Overhead costs are not expected to be affected by the decision.

l The cost of capital for such a project is estimated to be 10 per cent p.a.

l The project is not expected to require any additional working capital.

l In the interests of simplicity, taxation will be ignored.

l Assume, also in the interests of simplicity, that all cash flows occur at year ends.

Required:

(a) Assess the project (via NPV) on the basis of the above estimates.

(b) Carry out a sensitivity analysis of the above estimates.