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CIMA Exam CIMAPRA19-P03-1 Topic 6 Question 51 Discussion

Actual exam question for CIMA's CIMAPRA19-P03-1 exam
Question #: 51
Topic #: 6
[All CIMAPRA19-P03-1 Questions]

YHJ is considering an investment in a project that will cost $20 million. Annual fixed costs will be $12 million per year, excluding depreciation. Annual sales are forecast at 5 million units, with a contribution per unit of $8. After five years the equipment will be worn out and YHJ will have to spend $50 million on disposal costs. The discount rate is 10%.

Calculate the sensitivity of the net present value of this project to a 20% increase in the disposal costs.

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Suggested Answer: A, B, C

by Marsha at Jul 17, 2024, 11:31 PM

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Micah
16 hours ago
Hmm, 31% seems a bit high. I bet the answer is going to be somewhere in the teens, but I'll double-check my work just to be sure.
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Talia
2 days ago
Okay, let's think this through step-by-step. A 20% increase in disposal costs would be an additional $10 million, so that's definitely going to impact the NPV.
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Justine
2 days ago
I believe the correct answer is C) 31%, as a 20% increase in disposal costs will have a substantial effect on the project's net present value.
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Adell
8 days ago
I agree, if the disposal costs increase by 20%, it will have a significant impact on the project's profitability.
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Hyun
11 days ago
I think the sensitivity of the net present value will be affected by the increase in disposal costs.
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