Question 4 (20 marks) Kenny Co.

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Question 4                                                                                                                                                         (20 marks)

Kenny Co. is considering a project which has a useful life of two years. The project requires an initial investment of N$7 000 000. The cash inflow from the sale of the product is N$6 500 000 in each of the two years with a selling price of $10 per unit. Total variable costs are estimated at N$2 000 000 for each year. The cost of capital is 8%.


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a)      Measure the sensitivity of the project NPV to change in the following variables: initial investment, sales volume, selling price, variable cost per unit, and cost of capital.       (15 marks)

To which variable NPV is more sensitive i.e. which variable management should monitor closely for the project to remain viable?                                                                       (5 marks

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