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Investment Appraisal Under Uncertainty – Sensitivity Analysis (example 1)
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I can see all the comments but not the online lecture…?
Downloaded Chrome, worked thank God!
Wow, couldn’t be better. Nevertheless, if a question asked us to evaluate sensitivity for sales volume, sales price and variable cost it appears we would have the same change in the variables (for all of them) if we only calculated the PV for contribution only and not the independent variables i.e. separate PV for sales price and variable cost respectively. What I want to know is that wont such an approach limit us on the marks awarded?
They would not be the same.
Sales price will have a different effect (and therefore a different sensitivity) than sales volume (with sales volume the contribution per unit remains the same, but if sales proie changes then the contribution per unit changes). So too will the variable costs.
Thanks a lot. I get it.
i am confused about the last part cost of capital sensitivity?? please can anyone tell me in detail the whole working including IRR please help me out….
@adeel15, you can easily understand this if you went back to the video on the IRR. I have found it to be easy actually. Remember that the IRR gives you the cost of capital that will result into NPV of Zero. Compare that IRR (which you must calculate with the information in the question) with the cost of capital (we have been given). The difference in percentage terms is the sensitivity on cost of capital.
better
cant we download this
?
No, you can watch lectures on line only
P.g 147 The answer for example 1 (vi) IRR (middle page).
Is the D.F wrong for (15,000 fixed costs)
Should the D.F be the same for (41,250 Contribution) ie. 4.675
How to get the sensitivity of cost of capital =+5.6%
why using 0.84/15 x 100%,can anyone help?Thanks.
@tiffanytoon, The cost of capital is 15%. For a NPV of 0, the cost of capital would have to be 15.84% (the IRR). So we can afford the cost of capital to change by 0.84 (15.84 – 15) from an existing 15.
In percentage terms, this is a change of 0.84/15 x 100 = 5.6%
@johnmoffat, thanks & like your clear explanation.
The screen is too small, I couldn’t view, can someone tell me what to do!!
@amytan, On the right hand side of the bar at the bottom of the screen is a symbol with 4 little arrows. If you click on it, then the video should be full screen.
Does anyone have the answer for IRR% for this question???
Look in the course notes
Answer should be there
hi. i used the same approach for sensitivity for qn dec 01 tower railways inc. i got 2003/10771 X 100% = 18.6%
no where near their ans. of 20.87% or fall in px of $2.50. Moreover their explanations n calculations are far more confusing !! pls help !!! tks
why is the contribution and the scrap a negative %?
@gracetsiga1, This has already been answered below. The negative indicates that we only have a problem if the contribution falls.
hi i’m new to this and i need some advise on how many sub to do this time.. I’m doing f8 and p2… and i had to fill my form for f9 as well in order to do my p2…I dont know shall i do f9 or shall i leave it for next term..
i cannot understand why the sensitivity to change of sales volume is negative
chapter 10 1b)
help
@dayah,
In my opinion, we are currently getting a NPV of +5329, in order to result in a NPV of zero(Breakeven analysis), we can let the sales volume to drop by that percentage.
And hence, it is negative.
Similarly, we can let the cont. p.u. to drop by 2.21%, it’s also negative.
That’s the conclusion I came to and I hope it will help,
quality of F9 lectures is much much higher than that of F7
