Homework Answers
Answer:
The project is more sensitive to selling price since NPV of the project is positive.
NPV of the project is +1,70,996
Working Notes:
| Year | Cash flow | PVF @15% | DCF |
| 0 | 400,000.00 | 1.00 | 400,000.00 |
| 1 | 200,000.00 | 0.870 | 173,913 |
| 2 | 200,000.00 | 0.756 | 151,229 |
| 3 | 200,000.00 | 0.658 | 131,503 |
| 4 | 200,000.00 | 0.572 | 114,351 |
| Present Value of Out flow = 400,000 | |||
| Present Value of inflow= 570995.67 | |||
| NPV = | 170,996 | ||
| Year | 1 | 2 | 3 | 4 |
| Sales | 600,000.00 | 600,000.00 | 600,000.00 | 600,000.00 |
| Incremental cost | 400,000.00 | 400,000.00 | 400,000.00 | 400,000.00 |
| Income | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 |
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