Company X is evaluating the purchase of a new machine and has the following information: Initial investment: 350 000

Residual value: nil

Expected life: 10 years

Sales volume: 20 000 units per year Sales price: 8.50 per unit

Variable cost: 3.50 per unit

Fixed costs: 24 875 per year

Cost of capital: 15%

1. Calculate the payback period, NPV of the project. How would you calculate IRR of the project? [7.5 marks]

2. Assess the sensitivity of the NPV to the change in sales price.