An investment of $40,000 today is expected to give rise to annual contribution of $25,000. This is based on selling one product, with a sales volume of 10,000 units, selling price of $12.50 and variable costs per unit of $10. Annual fixed cost of $10,000 will be incurred for the next four years; the discount rate is 10%.

Required:

(a)Calculate the NPV of this investment.

(b)Calculate the sensitivity of your calculation to the following:

(i)initial investment

(ii) selling price per unit

(iii)sales volume

(iv)fixed costs

(v) discount rate