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DIANA says

Can someone explain about he -289 in scrap…

John Moffat says

The PV of the scrap is 1845.

This would have to fall by 5329 to end up with a NPV of zero.

So in percentage terms this is a fall of 5329/1845 x 100% = 289%

However (as I do state in the lecture) this is ridiculous because it would mean that the scrap value would have to be negative! Usually, obviously the most it can fall is 100% down to zero. So you would state that the scrap is not sensitive at all.

(The only time it could possibly be relevant is if there were a possibility of us having to pay money to scrap the machine, which is very unlikely)

DIANA says

Understand…thx u sir!

John Moffat says

You are welcome, Diana

habibat 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

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).

habibat says

Wow, Now i understand. Many thanks for your quick response.

Your lectures has been great!

John Moffat says

Thank you

acca2050 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?

John Moffat says

Errrr….yes you are wrong

The change is 15.842-15 = 0.842.

So the percentage change from the actual cost of capital is 0.824/15 x 100% = 5.5%

(The answers to all of the examples are at the back of the Course Notes )

acca2050 says

ok cool

Oboro says

Pls sir I still do not understand why sales volume is -2.2%

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.

kaish says

and what about section c answer?

John Moffat says

You can find the answer at the back of the course notes.

Mohieddin says

I wish you taught all papers sir !

fergalfavier says

I can see all the comments but not the online lecture…?

fergalfavier says

Downloaded Chrome, worked thank God!

eadinnu says

It happened to me. What I did was to delete the cookies on the the browser and I started seeing the lectures.

I also installed another browser. this option also worked.

Yando says

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?

John Moffat says

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.

Yando says

Thanks a lot. I get it.

adeel15 says

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….

Yando says

@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.

efyamav says

better

nisi11 says

cant we download this

?

admin says

No, you can watch lectures on line only

danielglover says

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

tiffanytoon says

How to get the sensitivity of cost of capital =+5.6%

why using 0.84/15 x 100%,can anyone help?Thanks.

John Moffat says

@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%

tiffanytoon says

@johnmoffat, thanks & like your clear explanation.

amytan says

The screen is too small, I couldn’t view, can someone tell me what to do!!

John Moffat says

@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.

eyal says

Does anyone have the answer for IRR% for this question???

admin says

Look in the course notes

Answer should be there

sunflowerdragon says

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

gracetsiga1 says

why is the contribution and the scrap a negative %?

John Moffat says

@gracetsiga1, This has already been answered below. The negative indicates that we only have a problem if the contribution falls.

manjeet12345 says

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..

dayah says

i cannot understand why the sensitivity to change of sales volume is negative

chapter 10 1b)

help

louis06111 says

@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,

chandandabs says

quality of F9 lectures is much much higher than that of F7