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- This topic has 5 replies, 3 voices, and was last updated 7 years ago by John Moffat.
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- September 9, 2016 at 6:52 am #339241
Please explain the calculations of sensitivity analysis in part a.
September 9, 2016 at 7:37 am #339281The examiner has shown the workings in a confusing way!
The sensitivity is the NPV as a % of the PV of the flows that change (i.e. the PV of the sales revenue).
The sales revenue is $4,200,000 per year for 15 years, starting at time 4.
So the PV of the revenue = 4,200,000 x 7.191 (the 15 year annuity factor) x 0.731 (the normal 3 year factor because the flows start 3 years late – time 4 instead of time 1).
This is equal to 22,102,677Therefore the sensitivity = 383,000/22,102,677 = 1.7%
September 9, 2016 at 9:20 am #339310Thanks sir your calculations are easy and simple.
September 9, 2016 at 6:12 pm #339471You are welcome (and thank you 🙂 )
February 23, 2017 at 2:33 am #373754Although the examiners method made sense, I was having such a difficult time with it.
Yours is much easier and what we are used to, Thanks alot sir!
February 23, 2017 at 9:20 am #373788You are welcome 🙂
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