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in part (b) i have done calculation for sensitivity using formula NPV/NPV of the affected factor.
NPV=1083000
contrbution=500-200-40(Variable Cost)=260, after tax=260(1-0.3)=182
therefore, PV of the affected factor=182*5500*3.605=3608605i.e,1083000/(182*5500*3.605)=30%. is this method right ?
in book solution is very confusing. Please let me know if my solution is right or am I missing anything??
Your method is fine, except for two things.
One is that the question actually asked for the increase in sales in units, and so for this you need to take 30% from 5,500 units to get the answer required.Secondly, strictly you should take into account the fact that if there are fewer extra units, then there will be less working capital needed. You have ignored this. You would probably only lose 1 mark for this.
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