ABC Co is considering a project with the following cash flows.

Net cash flows

($000)

Cash inflows

($000)

Variable cost

($000)

Initial investment

($000)

Year

7,000

0

4,500

6,500

(2,000)

1

4,500

6,500

(2,000)

2

Cash flows arise from selling 650,000 units at $10 per unit. ABC Co has a cost of capital of 8%.

Required:

Measure the sensitivity of the project to changes in variables.

Example (1) O ABC Co is considering a project with the following cash flows. Year Initial investment ($000) 7.000 Variable costs ($000) Cash inflows ($000) Net cash flows ($000) 0 1 o 2 (2,000) (2.000) 6,500 6,500 4,500 4,500 Cash flows arise from selling 650,000 units at $10 per unit. ABC Co has a cost of capital of 8%. Required: Measure the sensitivity of the project to changes in variables. 16