A company is evaluating a new product proposal. The proposed product selling price

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