Question 2 Gamma plc is considering an investment in a new machine at a cost of €335,000. - Additional information Sales

[answerhappygod]

Question 2 Gamma Plc Is Considering An Investment In A New Machine At A Cost Of 335 000 Additional Information Sales 1 (89.32 KiB) Viewed 20 times

Question 2 Gamma plc is considering an investment in a new machine at a cost of €335,000. - Additional information Sales of 13,000 units per annum has been accurately forecasted. Selling price of €28.15 has been set for four years, with no inflation. Variable estimated at €13.46 per unit. Fixed costs are expected to be €75,000 annual respectively. Gamma plc uses post-tax cost of capital of 9% to appraise all investments - Requirement: a) Calculate the NPV for investment option. (4 marks) b) Calculate the below sensitivities. i. ii. iii. iv. Initial investment. Fixed Cost sensitivity. Selling price per unit. Variable cost sensitivity. (2 marks) (2 marks) (4 marks) (3 marks) c) Sensitivity analysis highlights areas of the investment appraisal decision that are of concern. Explain the significance of sensitivities calculated above to the investment appraisal decision and recommend ONE potential course of action to eliminate each of the threats identified. (5 marks)