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Explanation in detail required

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Explanation in detail required

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • November 29, 2014 at 2:21 pm #214419
    sheen
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    A project requires an investment of $25,000 and is expected to generate a cash inflow of $8,000 a year for 5 years (with the first receipt in one years time).

    The cost of capital is 10%.

    What is the sensitivity to change of the cash inflow each year?

    November 29, 2014 at 4:39 pm #214459
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    First you need to calculate the PV of the inflows.
    This is 8,000 x annuity factor for 5 years at 10%, which is $30328.

    The NPV is the PV of the inflows minus the initial cost of 25,000, so $5328.

    The sensitivity is the NPV divided by the PV of the inflows, expressed as a %.
    So the sensitivity is 5328/30328 = 17.58%

    If the logic is not clear, then you should watch the free lecture on sensitivity calculations.

    (Since you are not charged for anything on this website, it would be a bit nicer if you could say ‘please’ rather than ‘explanation in detail required’ !!!!!)

    November 29, 2014 at 8:40 pm #214513
    sheen
    Member
    • Topics: 2
    • Replies: 8
    • ☆

    Apologies for using that word Sir. Didnt mean anything like that.

    Thank you so much and i really appreciate your efforts. Thank you and sorry again.

    November 30, 2014 at 8:08 am #214606
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    No problem 🙂

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    Posts
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