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6 Which of the following statements are correct?
(1) The sensitivity of a project variable can be calculated by dividing the project net present value by the present
value of the cash flows relating to that project variable
(2) The expected net present value is the value expected to occur if an investment project with several possible
outcomes is undertaken once
(3) The discounted payback period is the time taken for the cumulative net present value to change from negative
to positive
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3how is the ans B?
i dont understand why second one is wrong
in the 3rd one, what has payback got to do with NPV?Suppose the possible outcomes are 50 and 100, each with a 0.5 probability. Then the expected value is 75, but this will not actually occur – the actual outcome will either be 50 or it will be 100.
The discounted payback period is the payback period calculated using the discounted cash flows. It is the number of years for the PV of the inflows to equal the initial investment (i.e. the number of year for the NPV to reach zero).
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