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Hi Sir,
Well the question is:
A project has required investment 25,000 expected to generate a cash inflow of $8,000 a year for 5 years (With first year receipts in one year time), cost of capital is 10%
what is sensitivity to change in cash inflow each year?
Answer : – 17.58
I did this;
Year 0 25000 x 1.00 = (25000)
Year 1-8 8000 x 3.791 = 30328
NPV = 53288000 x 3.791 = 30 328
Sensitivity 5328 / 30 328 x 100 = 17.6 I said 17.5 positive why is it negative? Or have I calculated wrong??
Please help thanks.
Your calculation is correct.
The reason it is negative is that we only have a problem if the cash inflow falls (if it increases then no problem at all because the NPV will be higher).
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