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Hello, I am trying to understand the 1st example given in chapter 10 of the BBP text on sensitivity analysis which starts off with “Kenney Co.” The company’s cost of capital was 8% which gave an NPV of $1,024. Regarding the sensitivity w.r.t. cost of capital, the IRR was calculated as 18.56%. It was then said “the cost of capital can then increase by 132% before NPV becomes negative.” My question is , how was the 132% arrived at?
The cost of capital can increase by18.56 – 8 = 10.56 percentage points.
It is currently 8, and so the increase in percentage terms is (10.56 / 8) x 100%
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