Financial Accounting the Contribution Margin Thesis

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4)1. The NPV of the project is $36,438,244 and the IRR is 312%. Depreciation is not included in the calculation because it is not a cash flow. It impacts flows at the tax level, but the tax rate is not known so this impact could not be calculated.

2. During the sensitivity analysis, the discount rate proves to be irrelevant. Dramatic changes in the hurdle rate are barely reflected in the NPV. Changes in sales volumes have a greater impact, but ultimately sales volumes would need to fall dramatically short in order to impact the project's viability. Selling price is the most important variable. The project's high NPV derives primarily from its contribution margin, which is a gaudy 79%. If the company is not able to charge such a high markup on the new balls, the project's viability decreases dramatically.

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At $19, the project loses money. So therefore, the most important variable is the contribution margin, fed by the high selling price.

3. Nonfinancial factors that could impact the decision include competing investment opportunities. This project will be evaluated against other projects. Even with a high NPV, if another project has a higher NPV the new ball project will not go ahead. Another qualitative factor is that this project's high initial investment means that it will require approval. It could be….....

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"Financial Accounting The Contribution Margin" (2008, November 02) Retrieved May 20, 2025, from
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https://www.aceyourpaper.com/essays/financial-accounting-contribution-margin-27104
   

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