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Hi ,
I wanna ask about a answer from F9 text book relating to sensitivity analysis. I have discounted factor 5% with NPV 317, 20% with NPV (128),IRR is 18.56%. Why cost of capital can increase by 132% before NPV becomes negative?
PLEASE ANSWER ME SOON~ THANK YOU.You have not typed out the whole question – you have not said what the cost of capital is!!
I think that the cost of capital might have been 8%.
If that is the case, then since the IRR is 18.56% then the cost of capital can increase by up to 10.56 percentage points.In percentage terms this is an increase of 10.56/8 x 100% = 132%
I do suggest that you watch my free lectures on this. Our lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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