260 750,000 2 15,000 475 280 750,000 3 10,000 500 295 750,000 4 10,000 570 320
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Question
Oman Company is considering the investment on a project with initial investment of OMR 5,000,000. The project has a life of 4 years. Information relating to the future cash flows of this project are as follows:
Year |
Sales volume (units) |
Selling price per unit |
Variable cost per unit |
Fixed cost |
1 |
15,000 |
450 |
260 |
750,000 |
2 |
15,000 |
475 |
280 |
750,000 |
3 |
10,000 |
500 |
295 |
750,000 |
4 |
10,000 |
570 |
320 |
750,000 |
Oman company has a nominal cost of capital of 13%.
Required:
Measure the sensitivity of the project to changes in variables and give your recommendations.
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