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sensitivity analysis:sensor corporation

Initial Investment
Life of the project
Discount Rate
OPERATING Level (nos)

8000
10
15%
3000

8000
10
15%
3000

8000
10
15%
3000

8000
10
15%
3000

5%

10%

15%

3.2

3.04

2.88

2.72

9600
5400
4200
1200
1200
1800
0
1800
720
1080
2280
11443
3443

9120
5400
3720
1200
1200
1320
0
1320
528
792
1992
9998
1998

8640
5400
3240
1200
1200
840
0
840
336
504
1704
8552
552

8160
5400
2760
1200
1200
360
0
360
144
216
1416
7107
-893

Selling price falls by


Selling price
Revenue
Variable Cost
Contribution
Fixed Cost
Depreciation
PBIT
Interest
PBT
Tax@40%
PAT
Cash flow from operations
PV of cash inflows for a period of 10 years(2280* 5.019)
NPV AT 15%

The sensitivity of the project with respect to the SP can be defined as % change in NPV from
the normal case for a given change in the key variable determining the NPV of the project.
It is observed that the NPV of the project fell by Rs.1,446 with a 5% drop in SP.
The NPV becomes negative when the selling price drops by 11.90%. If it drops below Rs.2.64
the project becomes unviable with negative NPV

nge in NPV from


of the project.

ps below Rs.2.64

8000
10
15%
3000

20%
2.56
7680
5400
2280
1200
1200
-120
0
-120
0
-120
1080
5421
-2579

scenario analysis
SCENARIO
demand level (nos)
selling price(Rs./unit)
variable cost(rs)
overheads

Initial Investment
Life of the project
Discount Rate
SCENARIO
OPERATING Level (nos)
Selling price
Revenue
Variable Cost
Contribution
Fixed Cost
Depreciation
PBIT
Interest
PBT
Tax@40%
PAT
Cash flow from operations
pv cashflow 10 years
NPV AT 15%
probability%
Expected NPV
standard deviation of NPV
Coefficient of variation

EXCELLENT
GOOD
NORMAL
BAD
10%
5%
3000
-5%
5%
-6.25%
3.2
-5%
10% same
5400 same
5%
-5%
1200
10%

WORST
-10%
-10%
10%
20%

8000
10
15%
EXCELLENT
3300
3.36
11088
5940
5148
1260
1200
2688
0
2688
1075
1613
2813
14117
6117
15%

8000
10
15%
WORST
2700
2.88
7776
5940
1836
1440
1200
-804
0
-804
0
-804
396
1988
-6012
15%

8000
8000
10
10
15%
15%
GOOD
NORMAL
3150
3000
3.00
3.20
9450
9600
5400
5400
4050
4200
1140
1200
1200
1200
1710
1800
0
0
1710
1800
684
720
1026
1080
2226
2280
11172
11443
3172
3443
20%
30%
1736
9293.56
0.19

for finding the relative risk of the project coefficient of


variation may be used. as an absolute measure of risk,
variance or standard deviations are adequate measures.
when the projects have different sizes, different expected
NPV and different standard deviations they need to be
compared for relative risk. the coefficeint of variation
states the change in expected NPV PER UNIT CHANGE IN
RISK.

8000
10
15%
BAD
2850
3.04
8664
5400
3264
1320
1200
744
0
744
298
446
1646
8263
263
20%

6117
3172
3443
263
-6012

15%
20%
30%
20%
15%

1736
1736
1736
1736
1736

4381
1436
1707
-1473
-7748

4381
1436
1707
-1473
-7748

4381 19193161
1436 2062096
1707 2913849
-1473 2169729
-7748 60031504
86370339

1735.856

9293.564

SIMULATION :SENSOR CORPORATION


DEMAND LEVEL

SELLING PRICE
VALUE
2600.00
2700.00
3000.00
3100.00
3200.00
3500.00

PROBABILITY
0.10
0.20
0.30
0.10
0.20
0.10

ITERATION1
Random No

RANDOM NO
00-09
10_29
30-59
60-69
70-89
90-99

VALUE
2.75
2.85
3.00
3.15
3.30

ITERATION2
Random No

Value

PROBABILITY
0.20
0.25
0.35
0.10
0.10

Value

Demand Level(nos)
selling price(/unit)
variable cost(/unit)

18
81
62

2700.00
3.15
1.80

31
13
93

Simulation analysis
Initial Investment
Life of the project
Discount Rate

8000
10
15%

8000
10
15%

8000
10
15%

demand level
2700
Selling price
3.15
Revenue
8505
Variable Cost
4860
Contribution
3645
Fixed Cost
1200
Depreciation
1200
PBIT
1245
Interest
0
PBT
1245
Tax@40%
498
PAT
747
Cash flow from operations
1947
PV of cash inflows for a period of 10 years 9772
NPV AT 15%
1772

3000
2.75
8250
5700
2550
1200
1200
150
0
150
60
90
1290
6475
-1525

3200
3.00
9600
5440
4160
1200
1200
1760
0
1760
704
1056
2256
11323
3323

3000.00
2.75
1.90

when sufficiently large iterations are performed we cang get the distribution of the variables to
check if the random numbers selected in the iterations
generate the probability distribution that matches the assumed distribution.
the mean and standard deviation of Npv s of the simulated iterations will truly
represent the worth and the risk of the projects.

the mean and standard deviation of Npv s of the simulated iterations will truly
represent the worth and the risk of the projects.

VARIABLE COST
RANDOM NO
00-19
20-44
45-79
80-89
90-99

ITERATION3
Random No

e variables to

VALUE PROBABILITY
1.70
0.20
1.80
0.60
1.90
0.20

Value
76 3200.00
46
3.00
11
1.70

1.50

RANDOM NO
00-19
20_79
80-99

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