Question
. A firm is considering the introduction of a new automatic machine. The estimated costing data for this project are shown below. Initial cost of
. A firm is considering the introduction of a new automatic machine. The estimated costing data for this project are shown below. Initial cost of the machine $240,000 Planning horizon 4 years Salvage value after 4 years nil Income $100,000 p.a. Operational & maintenance cost $20,000 p.a. MARR 10% p.a. Economic assessment method NPV The firm is confident about the estimated values of the initial cost and salvage value, but it feels that the income and the operational cost are subject to error. a. Express NPV as a function of x (% change in operational cost) and y (% change in income) and plot y as a function of x. Comment on the result. b. If there is no error with operational cost, what is the maximum percentage change in annual income before the project becomes unviable? c. If there is no error with annual income, what is the maximum percentage change in operational cost before the project becomes unviable?
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