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Sensitivity Analysis & Scenario Analysis

The document analyzes the sensitivity of key input variables on a project's net present value (NPV) through different scenarios. It identifies the input variables of fixed cost, sale price per unit, generated units, and variable cost. It then shows the base values of these variables and their values under different cases where one variable is changed at a time. The NPV is recalculated for each case. Two additional scenarios of best and worst case are created by varying the fixed cost, variable cost, and sale price per unit. The operating cash flows and NPV are shown for the base, best, and worst case scenarios.

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Yasir Rahim
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55 views

Sensitivity Analysis & Scenario Analysis

The document analyzes the sensitivity of key input variables on a project's net present value (NPV) through different scenarios. It identifies the input variables of fixed cost, sale price per unit, generated units, and variable cost. It then shows the base values of these variables and their values under different cases where one variable is changed at a time. The NPV is recalculated for each case. Two additional scenarios of best and worst case are created by varying the fixed cost, variable cost, and sale price per unit. The operating cash flows and NPV are shown for the base, best, and worst case scenarios.

Uploaded by

Yasir Rahim
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Sensitivity Analysis

Input Variables:
• Fixed Cost
• Sale Price Per Unit
• Generated Units
• Variable Cost
Sr. No Variables Base Year Case 1 Case 2 Case 3 Case 4
Changed FC Changed Sales Price Changed Changed VC
Generated Price
1 Fixed Cost
184,900 129,430 184,900 184,900 184,900
2 Variable Cost
22,819 22,819 22,819 22,819 15,974
3 Sale Price Per
Unit
287,488 287,488 344,986 316,237 287,488
4 Generated Units
17,968 17,968 17,968 19,765 17,968
Sensitivity Analysis
NPV Base Year – 140,846

Year Case 1 Case 2 Case 3 Case 4


0 -1000,000 -1000,000 -1000,000 -1000,000
1 233,104 234,426 215,675 201,388
2 217,204 218,437 200,964 187,652
3 202,390 203,538 187,257 174,853
4 188,585 189,655 174,485 162,927
5 175,722 176,719 162,584 151,814
Total OCF 1,017,005 1,022,775 940,964 878,635
NPV 17,005 22,775 (59,036) (121,365)
Scenario Analysis
1. Base Year is Year 1
2. Scenarios are developed based on WACC 7.32%
3. Input for Scenarios are as under

Sr. No Variables Base Year Best Case Worst Case


1 Fixed Cost
184,900 166,410 203,390
2 Variable Cost
1.3 1 1.40
3 Sale Price Per Unit 16 18 14
Scenario Analysis
1. Operating Cash Flow Formula
OCF ((Unit Sales per year- V Cost)*Price per unit cost -Fixed Cost)*(1-Tax
Rate)+Dep Ex*Tax Rate

OCF Variables

Base Year
211,338
Best Case
266,702
Worst Case
160,319
Assumptions for NPV Calculation
• Case OCF is held constant for all years
• Change in Networking Capital is held constant for all years
• Change in Net Capital Sepnding is held constant for all years
Scenario Analysis
NPV Base Year – 140,846

Year Base Best Worst


0 -1,000,000 -1,000,000 -1,000,000
1 196,923 248,511 149,384
2 183,492 231,560 139,195
3 170,976 215,766 129,701
4 159,314 201,049 120,854
5 148,448 187,336 112,611
Total OCF 859,154 1,084,223 651,745
NPV (140,846) 84,223 (348,255)

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