QUESTION

You have been given the following figures to assess the viability of a new portable hospital scanner. It is expected that you will be able to capture 10 per cent of the total market of 1.1 million units. The market price will be $400,000 and the unit variable cost is 90 per cent of the market price. Fixed costs of running and manufacture amount to $2 billion per annum.

Required:

a. What is the Net Income of the project?

b. You have been approached by the management, who disagree on the figures that were originally used in the analysis. They want you to consider the following scenarios proposed by different directors in the company.

Sender A Sender B Sender C

market size 0.8 million 1 million 1.2 million

market share (%) 4 10 16

unit price ($) 300 000 375 000 400 000

virable cost (%) 116 80 70

fixed cost ($) 5 billion 3 billion 1 billion

Carry out a sensitivity analysis of the project. What are the main uncertainties in the project?