Camnet Industry is considering introducing a new line of higher end produces. Below are the company's forecast
Question:
Camnet Industry is considering introducing a new line of higher end produces. Below are the company's forecast of financial data for the new products.
Price per unit: $15
Quantity: 300,000
Variable Cost per unit: $8
Fixed Costs: $1,750,000
CCA rate: 20%
Capital Investment: $3,750,000
WACC: 13.6%
Calculate the project's NPV based on a 5-year life, using straight-line CCA (ignore the half year rule).
a. How sensitive is NPV to a 4% reduction in price?
b. How sensitive is NPV to a 6% reduction in quantity sold?
c. How sensitive is NPV to a 5% increase in variable costs?
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin