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Example Sensitivity Analysis

The document analyzes the sensitivity of key variables in a financial model for a new product. It shows how the NPV is affected by changes in sales, cost of goods sold, price, net working capital, and other factors like cannibalization rate and cost of capital. The analysis identifies sales, cost of goods sold, and price as the most significant drivers of NPV. It also provides forecasts, calculations, and assumptions used in the financial model.

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mc lim
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7K views4 pages

Example Sensitivity Analysis

The document analyzes the sensitivity of key variables in a financial model for a new product. It shows how the NPV is affected by changes in sales, cost of goods sold, price, net working capital, and other factors like cannibalization rate and cost of capital. The analysis identifies sales, cost of goods sold, and price as the most significant drivers of NPV. It also provides forecasts, calculations, and assumptions used in the financial model.

Uploaded by

mc lim
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Sensitivity Analysis

Impact of Sales Impact of COGS


Sales NPV COGS NPV
$5,025,968 5,025,968
100,000 $5,025,968 110 5,025,968
70,000 ($2,423,131) 120 3,252,373
130,000 $12,475,067 100 6,799,563

Impact of Price Impact of NWC


Price NPV NWC NPV
$5,025,968 5,025,968
260 $5,025,968 2100000 5,025,968
240 $1,478,778 3000000 4,939,871
280 $8,573,158 4000000 4,844,208
Analysis
Year 0 1 2 3 4
Incremental Earnings Forecast
Sales $0 $23,500,000 $23,500,000 $23,500,000 $23,500,000
Cost of Goods Sold $0 $9,500,000 $9,500,000 $9,500,000 $9,500,000
Gross Profit $0 $14,000,000 $14,000,000 $14,000,000 $14,000,000
Selling, General, and Admin. $0 $3,000,000 $3,000,000 $3,000,000 $3,000,000
Research and Development $15,000,000 $0 $0 $0 $0
Depreciation $0 $1,500,000 $1,500,000 $1,500,000 $1,500,000
EBIT ($15,000,000) $9,500,000 $9,500,000 $9,500,000 $9,500,000
Income Tax ($6,000,000) $3,800,000 $3,800,000 $3,800,000 $3,800,000
Unlevered Net Income ($9,000,000) $5,700,000 $5,700,000 $5,700,000 $5,700,000

Free Cash Flow


Plus: Depreciation $0 $1,500,000 $1,500,000 $1,500,000 $1,500,000
Less: Capital Expenditures ($7,500,000) $0 $0 $0 $0
Less: Increase in NWC ($2,100,000) $0 $0 $0
Free Cash Flow ($16,500,000) $5,100,000 $7,200,000 $7,200,000 $7,200,000

NPV $5,025,968

Calculations Area
Sales
Sales of new router $26,000,000 $26,000,000 $26,000,000 $26,000,000
Canibalized Sales $2,500,000 $2,500,000 $2,500,000 $2,500,000

Cost of Goods Sold


COGS for New Router $11,000,000 $11,000,000 $11,000,000 $11,000,000
COGS for Canibilized Sales $1,500,000 $1,500,000 $1,500,000 $1,500,000

Net Working Capital Requirements


Cash Requirements
Inventory
Receiveables $0 $3,525,000 $3,525,000 $3,525,000 $3,525,000
Payables $0 $1,425,000 $1,425,000 $1,425,000 $1,425,000
Net Working Capital $0 $2,100,000 $2,100,000 $2,100,000 $2,100,000

PV of Free Cash Flow (Eq) ($16,500,000) $4,553,571 $5,739,796 $5,124,818 $4,575,730


PV of Free Cash Flow (Funct) ($16,500,000) $4,553,571 $5,739,796 $5,124,818 $4,575,730

Data
Year 0 1 2 3 4
Direct Effects
Unit Sales 100,000 100,000 100,000 100,000
Wholesale Price $260 $260 $260 $260
Design Costs $5,000,000
Production Cost $110 $110 $110 $110
Cost of Software Engineers $10,000,000
Cost of Lab Equipment $7,500,000
Depreciation % 0.2 0.2 0.2 0.2
Cost of Marketing and Support $2,800,000 $2,800,000 $2,800,000 $2,800,000
Tax Rate 0.4 0.4 0.4 0.4 0.4

Indirect Effects
Lost Rental $200,000 $200,000 $200,000 $200,000
Canibalization: % of Units 0.25 0.25 0.25 0.25
Canibalization: Sales Price $100 $100 $100 $100
Canibalization: Production Cost $60 $60 $60 $60

Working Capital Requirements


Cash Requirements
Inventory
Receiveables (% of sales) 0.15 0.15 0.15 0.15
Payables (% of sales) 0.15 0.15 0.15 0.15

Cost of Capital 0.12


Impact of Canibalization
Canibalization NPV
5,025,968
0.25 5,025,968
0.4 3,961,811
0.1 6,090,125

Impact of Cost of Capital


COC NPV
5,025,968
0.12 5,025,968
0.15 3,572,134
0.1 6,090,428

$0
$0
$0
$0
$0
$1,500,000
($1,500,000)
($600,000)
($900,000)

$1,500,000
$0
$2,100,000
$2,700,000

$0
$0

$0
$0

$0
$0
$0

$1,532,053
$1,532,053

0.2

0.4

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