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Sensitivity analysis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Sensitivity analysis

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • May 8, 2017 at 6:10 am #385301
    myacca1990
    Participant
    • Topics: 153
    • Replies: 164
    • ☆☆☆

    I was reading a text about sensitivity analysis topic and could not understand the sensitivity analysis of a cost of capital.
    The project IRR was 18.56% and the cost of capital was 8%.
    “The cost of capital can therefore increase by 132% before the NPV becomes negative”
    What does this line means?

    May 8, 2017 at 11:42 am #385332
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54805
    • ☆☆☆☆☆

    You really should watch the free lectures on sensitivity, because I explain this in the lectures!

    The increase is 18.56 – 8 = 10.56.
    As a % of the current cost of capital this is 10.56/8 x 100 = 132%

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  • The topic ‘Sensitivity analysis’ is closed to new replies.

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