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 = 5328
8000 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.
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Re: MCQ on Opentuition
11y ago#1Your 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).
Oh ok. Thanks. So when it says change in cash inflow it is always negative?
11y ago#3Yes. (and if it was an outflow then it would be positive).
Perfect! Very helpful!
11y ago#5You are welcome :-)
very helpful
11y ago#7:-)
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