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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?
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’ !!!!!)
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.
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