A company is evaluating a new product proposal. The proposed product selling price
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is £180 per unit and the variable costs are £60 per unit. The incremental cash fixed
costs for the product will be £160,000 per annum. The discounted cash flow calculation
results in a positive NPV:
Cash flow Discount rate Present value
£ £ £
Year 0 Initial outlay (1,000,000) 1.000 (1,000,000)
Years 1–5 Annual cash flow 320,000) 3.791 1,213,120)
Year 5 Working capital released 50,000 ) 0.621 ( 1 ,031,050)
Net present value (1 ,244,170)
What is the percentage change in selling price that would result in the project having a net present value of zero?
(A) 6.7 per cent
(B) 7.5 per cent
(C) 8.9 per cent
(D) 9.6 per cent
(E) 10.5 per cent
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