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Sensitivity Analysis

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

  • This topic has 3 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 3, 2014 at 1:47 pm #207399
    Moses
    Member
    • Topics: 7
    • Replies: 11
    • ☆

    Dear Sir,

    10) In the question below (Mock MCQ quiz), the answer is given as a positive sensitivity yet I thought it should be negative.

    A project requires an investment of $25,000 and is expected to generate a cash inflow of $8,000 a year for 5 years (with the first receipt in one years time).

    The cost of capital is 10%.

    What is the sensitivity to change of the cash inflow each year?

    Ans is +17.58% not -17.58% why?

    November 3, 2014 at 5:45 pm #207532
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    You are correct – it should be -17.58%

    Thank you for letting me know. I have corrected the exam and will have it re-uploaded immediately.

    December 4, 2014 at 12:16 am #217138
    Gregory
    Participant
    • Topics: 2
    • Replies: 4
    • ☆

    i have tied this question .

    sensitivity from my undestanding is NPV/ pv of project variable * 100

    I did not get 17.58 but i got and answer relatively close.

    NPV i got 5320. (30320-25000) 8000* 3.79 (df @10%)

    2nd… why is the sensitivity negative?

    December 4, 2014 at 10:38 am #217248
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    Your answer is close but not exactly the same, because you used a discount factor of 3.79. Why do you not use the table figure of 3.791?!!

    It is negative because we only have a problem if the inflow falls, not if it increases.

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