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May 24, 2020 at 10:08 am
Speaking of sensitivity, are the sales volume p.a, and the contribution p.u. the same because of they are directly related with the sales?
John Moffat says
May 24, 2020 at 11:45 am
No (because sales price itself is related but the sensitivity of sales price will be different). It is because both sales volume and contribution effect the cash flows in the same way.
February 13, 2020 at 2:31 pm
Great Lecture. Can you please help me understand how you define the sensitivity changing percentage as negative or positive? Thanks.
February 13, 2020 at 3:50 pm
If the flow would need to increase in order to arrive at an NPV of zero then the sensitivity is positive. If the flow would need to decrease in order to arrive at an NPV of zero then the sensitivity is negative.
Disha N says
August 14, 2019 at 3:48 pm
I have a question in the BPP revision kit question 16 Arbore. The requirement is to calculate the sensitivity of the selling price. My first question is why was the PV of the investment has been divided by the annuity? Secondly, why has this figure been added to the cost if we are looking for the selling price sensitivity. Lastly, in the BPP kit there is a similar requirement for question 13, which is Fernhust, the calculation however was based on the usual NPV of Project/NPV of Sales Revenue. I am not sure why there is the difference in calculation. Thank you so much.
August 15, 2019 at 7:19 am
The sensitivity is the % change for the NPV to be equal to zero.
For the NPV is zero then the PV of the revenue must be equal to the PV of the costs, therefore the PV of the revenue must equal 4,717,000.
If the revenue for an NPV of zero was equal to X, then the PV of X per year for years 4-15 is equal to X (7.191 x (1/1.11)^3) and this is equal to 4,717,000.
May 7, 2019 at 2:41 pm
Hi sir, I am not really sure about the fixed overheads per year. The question states that it increase by $140,000 per year, but what is the possible explanation of just taking the annuity value of $140,000 instead of increasing year by year?
May 7, 2019 at 3:14 pm
You are misreading.
Suppose you are currently paid 10,000 per year. Suppose I tell you today that I will increase your pay by 2,000 a year. I think you would expect that you will now be paid 12,000 a year.
I do not think that you will expect me to pay you 12,000 next year and then 14,000 the year after and so on 🙂 (Maybe I will increase your pay next year, but maybe I won’t – from now on you will be paid 12,000 a year until I say differently 🙂 )
May 7, 2019 at 4:10 pm
Thank you sir! I think I got it! there is a difference between increase per year and increasing every year. Thanks. 🙂
May 19, 2020 at 3:50 am
This explanation is Very helpful. I was confused by this part when I was going through the question, I tot the FOH would be 1st yr: $140k 2nd yr: $280k 3rd yr :$420k 4th yr: $560k Thank you for clarification.
May 19, 2020 at 8:21 am
I hope it is now clear 🙂
July 23, 2018 at 7:00 am
Thank you very much for the lecture. Just a question pls. The question asks us on the sensitivity p.a . Why are we using the figures based on the fifteen years and not annual figure
July 23, 2018 at 7:26 am
If the annual figure changes then it will change for every year and therefore the present value of all 15 years will change.
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