Answer to Question #117930 in Finance for jiten shreshtha

Question

perform sensitivity analysis using PW Method over a range of (+ or -) 20% in
i. initial investment. ii. net annual revenue
iii. salvage value iv. useful life:

Initial investment (Rs) = 200,000
Annual revenue (Rs) =50,000
Annual expenses (Rs) =5,000
Salvage values (Rs) =25,000
Useful life =10 yrs
MARR =12% Per year
Draw also the sensitivity graph.

Answer 1

$NPV=-200,000+45,000*\frac{1.12^9-1}{1.12-1}+\frac{45,000-25,000}{1.12^{10}}$

$NPV=471,343.99$

i) $I1=240,000\ I2=160,000$

$NPV1=431,343.99\ NPV2=511,343.99$

s-sensitivity

$s1=\frac{(431,343.99-471,343.99)}{471,343.99}*100\%=-9.27\%$

$s2=\frac{511,343.99-471,343.99}{471,343.99}*100\%=9.27\%$

$sensitivity\ NPV=9.27/20*100\%=46.35\%$

1% changes Initial investment gives changes of NPV on 46.35%

ii) $NPV=320,367.7$

$s=-32.03\%$

$sensitivity\ NPV=160.15\%$

iii) $NPV=472,953.86$

$s=0.34$

$sensitivity\ NPV=1.7$

iv)$NPV=262,083.19$

$s=-44.4$

$sensitivity\ NPV=222\%$