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.

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.

Hey John, I’m looking for the lecture in which the IRR of a perpetuity is calculated. I remembering you explaining it but cannot find that very lecture. Could you please help me out?

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.

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

wwwilliams says

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.

John Moffat says

The lower the % then the more sensitive it is to change.

wwwilliams says

thank you

John Moffat says

You are welcome 馃檪

yinnnn says

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.

John Moffat says

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.

visheshparyani says

Hey John, I’m looking for the lecture in which the IRR of a perpetuity is calculated. I remembering you explaining it but cannot find that very lecture. Could you please help me out?

John Moffat says

I cannot remember which lecture, but the IRR of a perpetuity is simply the annual cash flow divided by the initial investment expressed as a %.

visheshparyani says

Thanks John 馃檪

John Moffat says

You are welcome 馃檪

natalieward93 says

How have you calculated the contribution at 2.95 per unit x 15,000?

natalieward93 says

sorry was on the wrong example

John Moffat says

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.

issmmmm says

thank you very much sir for your response I will try as per your instruction .

issmmmm says

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