DRAG DROP

Place the correct quality cost classification against each cost described below.

Select and Place:

A machine requires an initial investment of $500,000. The net present value (NPV) of the investment in the machine is $36,500. Which of the following statements is correct in relation to the sensitivity of the investment?

A. The initial investment can increase by no more than 7.3% before the project is not viable.

B. The NPV can decrease by no more than 7.3% before the project is not viable.

C. The initial investment can increase by no more than 13.7% before the project is not viable.

D. The NPV can decrease by no more than 13.7% before the project is not viable.

In an inflationary environment which is the correct way of calculating net present value (NPV)?

A. Using nominal cash flows and a nominal discount rate.

B. Forecasting the cash flows including the effect of inflation and then using a real discount rate.

C. Using real cash flows and a nominal discount rate.

D. Forecasting the cash flows excluding the effect of inflation and then using a nominal discount rate.

A company is investing $200,000 in a project which will generate a cash flow of $60,000 each year for five years starting immediately. The company's cost of capital is 7%. The net present value of the investment to the nearest $100 is:

A. $63200

TTR Ltd plans to purchase a new plant for $1,000m on the 1st of January 20X6. The annual sales expected from the production of this plant is S400m per year. The plant has an expected life of five years. The financial accountant has computed the NPV of the project at $61.42m considering a discount rate of 10%. The marketing director wants to know the percentage drop in revenue that the sales team can afford before the project becomes unviable. Which of the following indicates the percentage required by the marketing director?

A. 4.05%

B. 5.05%

C. 4.5%

D. 10%