Comments

  1. avatar says

    Hi Mr John,

    I still dont understand how you arrived in the postive and negative sign from question i to v.

    can you please explain how you derive at the figures being -tve or +ve.

    many thanks

    • Avatar of John Moffat says

      What you have to ask yourself is will it make the NPV worse if it gets higher or lower.

      So, for example, as far as the revenue is concerned, we are only worried if it should fall – so the sensitivy is negative (it measures the percentage fall that we can afford).
      But as far as the cost of capital is concerned, we are only worried if it should increase – so the sensitivity is positive (it measures the percentage increase that we can afford).

  2. avatar says

    Hey John, Why u didn’t do cost of captial sensitivity? However I done it by my self and the IRR comes = 15.842%. I took 20% as another npv that resulted in ($26306).

    Now as per your formulae: NPV/PV of changes x 100% = 15%/15.842% x 100% = ~95%

    BUT I think its wrong?

    • Avatar of John Moffat says

      At present the NPV is 5329, and we need to know the % fall in sales volume that will give NPV of zero.

      If the sales volume per year falls, then the contribution per year falls, and therefore so too will be present value of the contribution flows. At present the present value of the contribution flows is 241189 – we need this to fall by 5329, which is a 2.2% fall.

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