NPV is 3.26. Can you explain using this value please ? Challenge 4.T expected de
ID: 2792249 • Letter: N
Question
NPV is 3.26. Can you explain using this value please ?
Challenge 4.T expected demand is 25,000 units per year. The cost per unit is $50 and they are sold at $70 each. Yd firm's MARR is 10% and the facility is expected to be operated for 20 years. The NPV for project is $3.26 million. You are asked to performed a sensitivity analysis to evaluate how changes in the following variables impact the project's NPV: construction cost, unit cost, unit price, demand, years, MARR. Changes are -80%,-50%,0%, +50%, +80%. Question 3. What is the most critical variable? thisExplanation / Answer
Sensitivity of Construction cost 0% -80% -50% 50% 80% Initial Investment -1000000 -200000 -500000 -1500000 -1800000 Demand in units 25000 25000 25000 25000 25000 Selling price per unit 70 70 70 70 70 Cost per unit 50 50 50 50 50 Net inflow per unit 20 20 20 20 20 Total inflows per year 500000 500000 500000 500000 500000 PVOA F at 10%,20 Yrs. 8.51356 8.51356 8.51356 8.51356 8.51356 PV of inflows 4256782 4256782 4256782 4256782 4256782 NPV+Initial investment+PV of inflows 3256782 4056782 3756782 2756782 2456782 In millions 3.26 4.06 3.76 2.76 2.46 Change % from the base case,ie.0% 25% 15% -15% -25% Sensitivity of unit cost 0% -80% -50% 50% 80% Initial Investment -1000000 -1000000 -1000000 -1000000 -1000000 Demand in units 25000 25000 25000 25000 25000 Selling price per unit 70 70 70 70 70 Cost per unit 50 10 25 75 90 Net inflow per unit 20 60 45 -5 -20 Total inflows per year 500000 1500000 1125000 -125000 -500000 PVOA F at 10%,20 Yrs. 8.51356 8.51356 8.51356 8.51356 8.51356 PV of inflows 4256782 12770346 9577759 -1064195 -4256782 NPV+Initial investment+PV of inflows 3256782 11770346 8577759 -2064195 -5256782 In millions 3.26 11.77 8.58 -2.06 -5.26 Change % from the base case,ie.0% 261% 163% -163% -261% Sensitivity of unit price 0% -80% -50% 50% 80% Initial Investment -1000000 -1000000 -1000000 -1000000 -1000000 Demand in units 25000 25000 25000 25000 25000 Selling price per unit 70 14 35 105 126 Cost per unit 50 50 50 50 50 Net inflow per unit 20 -36 -15 55 76 Total inflows per year 500000 -900000 -375000 1375000 1900000 PVOA F at 10%,20 Yrs. 8.51356 8.51356 8.51356 8.51356 8.51356 PV of inflows 4256782 -7662207 -3192586 11706150 16175771 NPV+Initial investment+PV of inflows 3256782 -8662207 -4192586 10706150 15175771 In millions 3.26 -8.66 -4.19 10.71 15.18 Change % from the base case,ie.0% -366% -229% 229% 366% Sensitivity of demand 0% -80% -50% 50% 80% Initial Investment -1000000 -1000000 -1000000 -1000000 -1000000 Demand in units 25000 5000 12500 37500 45000 Selling price per unit 70 70 70 70 70 Cost per unit 50 50 50 50 50 Net inflow per unit 20 20 20 20 20 Total inflows per year 500000 100000 250000 750000 900000 PVOA F at 10%,20 Yrs. 8.51356 8.51356 8.51356 8.51356 8.51356 PV of inflows 4256782 851356.37 2128391 6385173 7662207 NPV+Initial investment+PV of inflows 3256782 -148643.6 1128391 5385173 6662207 In millions 3.26 -0.15 1.13 5.39 6.66 Change % from the base case,ie.0% -105% -65% 65% 105% Sensitivity of Years 0% -80% -50% 50% 80% Initial Investment -1000000 -1000000 -1000000 -1000000 -1000000 Demand in units 25000 25000 25000 25000 25000 Selling price per unit 70 70 70 70 70 Cost per unit 50 50 50 50 50 Net inflow per unit 20 20 20 20 20 Total inflows per year 500000 500000 500000 500000 500000 PVOA F at 10%,20,4,10,30,36 yrs. 8.51356 3.16987 6.14457 9.42691 9.67651 PV of inflows 4256782 1584932.7 3072284 4713457 4838254 NPV+Initial investment+PV of inflows 3256782 584932.72 2072284 3713457 3838254 In millions 3.26 0.58 2.07 3.71 3.84 Change % from the base case,ie.0% -82% -36% 14% 18% Sensitivity of MARR 0% -80% -50% 50% 80% Initial Investment -1000000 -1000000 -1000000 -1000000 -1000000 Demand in units 25000 25000 25000 25000 25000 Selling price per unit 70 70 70 70 70 Cost per unit 50 50 50 50 50 Net inflow per unit 20 20 20 20 20 Total inflows per year 500000 500000 500000 500000 500000 PVOA F at 10%,2,5,15,18%,20 Yrs. 8.51356 16.35143 12.46221 6.25933 5.35275 PV of inflows 4256782 8175716.7 6231105 3129666 2676373 NPV+Initial investment+PV of inflows 3256782 7175716.7 5231105 2129666 1676373 In millions 3.26 7.18 5.23 2.13 1.68 Change % from the base case,ie.0% 120% 61% -35% -49% MARR 10% 2% 5% 15% 18% The most critical variable is the UNIT SELLING PRICE ---to which the NPV is most SENSITIVE as seen from the last line calculations
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