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How do i calculate sensitivity analysis if there is inflation and for example pvs are as follows :
Year 0 £(16,500,000)
Year 1 £3,569,840
Year 2 £3,672,734
Year 3 £3,779,230thank you
You do not say what you are wanting to measure the sensitivity of!! (The revenue per unit? The cost per unit? The cost of capital?)
The fact there is inflation makes no difference to the general approach which is covered in the free lecture on uncertainty.
Greetings,
sorry my bad mr john i already completed my F9 and i am trying to complete a question for my degree. The question is about a firm trying to do a project which will have 1275 members at 85% (Npv is positive at 85%) if i take :How much can %membership vary that is its sensitivity?
Year 0 £(16,500,000)
Year 1 £3,569,840
Year 2 £3,672,734
Year 3 £3,779,230
year 4 £ 3,379,230
year 5 £2,473,230
year 6 £2,779,230
year 7 £2,779,230
year 8 £1,779,230
Year 9 £1,779,230
year10 £1,779,230The amounts are fictitious All prior examples of sensitivity ive seen cashflows are same for all years and discounted at annuity %
Thank you again i spent like 12 hours trying to finish this task and still cant find a solution.
You need to calculate the total PV of all the flows that will change. So if there are no fixed costs involved, then it is the total of the PV’s of your cash flows from years 1 to 10. (If there are fixed costs, you need to calculate the variable cash flows and then the total PV of them).
Once you have that figure, then for a NPV of zero, the percentage change in the number of members will be (NPV / PV of flows as detailed above) x 100%
Hope that helps.
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