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Investment Appraisal Under Uncertainty: Sensitivity Analysis (example 1) – ACCA Financial Management (FM)

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  1. If the sensitivity has a low percentage do we say that the component of NPV calculated is has a high sensitivity? I thought we would say the sensitivity to change is high if the percentage is low. The semantics confuse me.

  2. Hi, John. I don鈥檛 understand under what circumstances should fixed costs be involved in the calculation? And under what circumstances fixed costs should be ignored in the calculation . Thanks.

    • When calculating the NPV all incremental costs are included.

      As far as calculating the sensitive of individual items, it depends what changes as a result. So if asked for the sensitivity of fixed costs then we calculate the PV of the fixed costs. However if asked for the sensitive of, for example the selling price or the contribution, the fixed costs are not relevant because they will not change if the selling price or the contribution changes.

  5. issmmmm: I would really need to see the actual question to be able to answer you properly, and the ACCA has not published this question.

    If it was really as you state (in which case I assume is was one of the 2 mark questions) then you would have to do it in the same way as calculating an IRR i.e. try two different tax rates and then approximate between them.

  6. Sir In Exam Sept 2018 there was a question related to sensitive Analysis in which examiner asked which Tax rate will be used which make NPV zero. Can you please explain how to calculate sensitive analysis for a ta rate. looking forward to your help
    Thanks in Advance

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