Question 3 Total 15 marks Muscat Chemicals LLC is in the business of making chemicals...
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Question 3 Total 15 marks Muscat Chemicals LLC is in the business of making chemicals for paint industries. It is considering a new project which requires a cash outlay of OMR 12000 Year Direct Cash Inflow Net Cash Labour Cost Material Cost Expenses Inflow 500 1000 600 6800 4700 700 1200 600 7000 4500 400 900 700 7100 5100 400 1000 600 7200 5200 900 800 7000 5000 300 Cash flows arise from selling 600,000 units at OMR 12 per unit. Muscat Chemicals LLC has a cost of capital of 7% a) Measure the sensitivity of the project to the changes in the following variables: Initial Investments, Selling price and Variable cost 4 Marks b) Calculate the IRR of the project and measure the sensitivity of the project to cost of capital 4 Marks c) Is a difference between Risk and Uncertainty? Why should you incorporate the effect of risk in capital budgeting ( 300 words) 7 Marks
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