Mike has set up a new company and estimates that the cost of capital

 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