Project Returns

  Mike has set up a new company and estimates that the cost of capital is 10%. His first project involves investing in $100,000 of equipment with a life of 10 years and a final scrap value of $10,000. The equipment will produce 10,000 units p.a. generating a contribution of $2 each. He estimates that additional fixed costs will be $10,000 p.a. Determine, on the basis of the above figures, whether the project is worthwhile (4 Marks) Calculate the sensitivity to change of: The initial investment The sales volume p.a. The contribution p.a. The fixed costs p.a. The scrap value The cost of capital