Hello, How did you work out the NPV for each project? The NPV formula doesn’t seem to be used in the solution but another method has been used, why is this?

The lecturer worked out the sensitivity analysis in percentages. I did it in amounts. The question doesn’t specify which is needed so I would be correct to show my answer in values?

It could be. However, I think that the value has to be related in some way to the proportional or percentage change in the original assumption. A value of 5 is very different if you are talking about the change in sales where the original assumption was 10,000 (V sensitive as you could easily be wrong by 5 in 10,000) or you are talking about a change in cost where the original assumption was 10 ie getting costs wrong by 50% might be thought of as unlikely.

From years 1-4 Sales and MC are having SAME CFs for EACH of the 4 years,hence, we will discount these using annuity factor for 4 years at 10% which is 3.17.

arjunh says

Hello,

How did you work out the NPV for each project? The NPV formula doesn’t seem to be used in the solution but another method has been used, why is this?

Thanks

duncana says

The lecturer worked out the sensitivity analysis in percentages. I did it in amounts. The question doesn’t specify which is needed so I would be correct to show my answer in values?

Ken Garrett says

It could be. However, I think that the value has to be related in some way to the proportional or percentage change in the original assumption. A value of 5 is very different if you are talking about the change in sales where the original assumption was 10,000 (V sensitive as you could easily be wrong by 5 in 10,000) or you are talking about a change in cost where the original assumption was 10 ie getting costs wrong by 50% might be thought of as unlikely.

Ken Garrett says

Where are you talking about -notes? Lectures? Where?

bhaven28 says

Around 7:32 on the lecture under the 10% factor it shows as 3.17, 3.17 and then 0.683

Many thanks

bhaven28 says

Hello any update on this please? just need to know how this was worked out

Ken Garrett says

The example is from P159 of the notes where 10% is given as the discount rate to use.

jetavi says

From years 1-4 Sales and MC are having SAME CFs for EACH of the 4 years,hence, we will discount these using annuity factor for 4 years at 10% which is 3.17.

Ken Garrett says

Yes.

bhaven28 says

Hi,

This may just be a refresher, but how do you work out the 10% factor?