Mikado plc is considering launching a new product involving capital investment of £180,000. The machine has a four-year life and no residual value. Sales volumes of 6,000 units are forecast for each...

Mikado plc is considering launching a new product involving capital investment of £180,000. The machine has a four-year life and no residual value. Sales volumes of 6,000 units are forecast for each of the four years. The product has a selling price of £60 and a variable cost of £36 per unit. Additional fixed overheads of £50,000 will be incurred. The cost of capital is 12.5 per cent p.a. Present a report to the directors of Mikado plc giving:

(a) the net present values

(b) the percentage amount each variable can deteriorate before the project becomes unacceptable

(c) a sensitivity graph