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Risk Analysis (Class)

This document analyzes the sensitivity of NPV to key variables for a project with a 5 year life and 50% tax rate. It provides current, pessimistic, expected, and optimistic values for quantity sold, price per unit, and variable cost per unit. Scenario analysis is performed to calculate the NPV under each scenario. The NPV is most sensitive to changes in quantity sold, ranging from -62222 to 87514.

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sandeepan
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54 views7 pages

Risk Analysis (Class)

This document analyzes the sensitivity of NPV to key variables for a project with a 5 year life and 50% tax rate. It provides current, pessimistic, expected, and optimistic values for quantity sold, price per unit, and variable cost per unit. Scenario analysis is performed to calculate the NPV under each scenario. The NPV is most sensitive to changes in quantity sold, ranging from -62222 to 87514.

Uploaded by

sandeepan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Discount Rate Project Life (in yrs) Tax Rate

12%
Expected values 10 33.33%
(in Rs '000)
Investment -24000
VC as % of Sales 66.67%
For years 1 to 10
Sales 18000
Variable Costs (VC) 12001
Fixed Costs 1000
Depreciation 2400
Profit Before Tax (PBT) 2599
Taxes 866
Profit After Tax (PAT) 1733
Operating cash flows 4133
PV of cash flow stream 23352
NPV of the project -648
Key Variables Pessimistic Expected Optimistic
Investment -24000 -20000 -18000
Sales 15000 18000 21000
VC as % of Sales 70% 66.67% 65%
Fixed costs 1300 1000 800

Calculate the Sensitivity of NPV to variations in


indicated key project variables.
Perform Scenario Analysis as well.

NPV
Key Variables Pessimistic Expected Optimistic
Investment -648 2599 4223
Sales 2599
VC as % of Sales 2599
Fixed costs 2599
Scenario Summary
Current Values: Pessimistic Expected Optimistic
Changing Cells:
$C$4 -20000 -24000 -20000 -18000
Result Cells:
$C$16 2599 -648 2599 4223
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Scenario Summary
Current Values: Pessimistic Expected Optimistic
Changing Cells:
$C$7 1400 800 1400 1800
$C$8 30 20 30 50
$C$10 20 40 20 15
Result Cells:
$C$18 -5360 -62222 -5360 87514
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Discount Rate Project Life Tax Rate
10% 5 50%
Expected values
(in Rs '000)
Investment -30000
Cost of Capital 10%
For years 1 to 5
Quantity Sold (in units) 1400
Price per unit 30
Sales 42000
Variable Cost per unit 20
Fixed Costs 3000
Depreciation 2000
PBT 9000
Taxes 4500
PAT 4500
Operating cash flows 6500
PV of cash flow stream 24640
NPV of the project -5360
Key Variables Pessimistic Expected Optimistic
Quantity Sold 800 1400 1800
Price per unit 20 30 50
VC per unit 40 20 15

Calculate the sensitivity of net present value to variations in (i) quantity manufactured & sold, (ii)
per unit, and (iii) variable cost per unit. Perform Scenario Analysis.

NPV
Key Variables Pessimistic Expected Optimistic
Quantity Sold -5360
Price per unit -5360
VC per unit -5360
ufactured & sold, (ii) price
nalysis.

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