Sensitivity Analysis
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Sensitivity Analysis NPV Question
A project has an initial investment of $200.00. You have come up with the following estimates of the projects with cash flows.
Pessimistic NPV Most Likely Optimistic
Revenues 30 40 50
Costs -20 -16 -10
If the cash flows are perpetuities and the cost of capital is 10%. What does a sensitivity analysis of NPV (no taxes) show? Please show step-by-step computations. Thanks!
BTW. As you are probably well aware, there is an answer for each (Pessimistic, Most Likely and Optimistic).
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The solution goes into a great amount of detail regarding the question being asked. Step by step explanation is provided for each part of the question which makes it very easy to follow along for anyone with just a basic understanding of the concepts. Overall, an excellent response to the question being asked.
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Cash Flow under pessimistic = 30-20 = 10
NPV under pessimistic situation = 10/.1 - 200 = -100
Cash Flow under most likely = ...
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