Sir,
If question is asking about how much change .... for NPV to be 0, can we always use that affected PV stream?
What i mean is let say how much sales price to be reduced if NPV to reach 0? in Arbore co (dec12) we used PV of sales stream to find change in sales price.
Moreover what i saw in your sensitivy lecture example, it asked about contribution PU and your answer used contribution stream.
If this is so can i say to investigate how much change in...
Sales price, sales vloume etc = sales stream
Cost per unit, etc.= cost stream?
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Sensitivity analysia
6y ago#1We use the PV of whatever it is that is going to change.
If we are only looking at the sensitivity of the selling price then only the revenue will change.
If we are looking at the sensitivity of sales volume, then it is the contribution that will change.
How do we find the relationship?
Like.. sales price = revenue
Sales volume = contribution
Can sales volume = revenue?
6y ago#3If only the sale price changes, then it is only the total revenue that will change.
However, if the sales volume changes then the total revenue and the total variable costs will both change. Given that the contribution is revenue less variable costs, it is therefore the contribution that will changes as the sales volume changes.
Ah i see thank you sir
6y ago#5You are welcome :-)
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