A project has an initial investment of 1000. You have come...

A project has an initial investment of 1000. You have come up with the following estimates of the project's cash flows (there are no taxes): | | Pessimistic | Most Likely | Optimistic | |---|---|---|---| | Revenues | 100 | 600 | 1200 | | Costs | 70 | 400 | 600 | Suppose the cash flows are considered as perpetual and the cost of capital is 20 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues.

Transcript

00:01 Hello students we are given a question a project has an initial investment of 1000 okay you have come up with the following estimates of the project's cash flows so we are given a table for pessimistic revenues is 100 most likely 600 optimistic 1200 cost is for pessimistic 70 for most likely 400 optimistic 600 now we are asked we are given that the suppose the cash flows are as perpetual in the cost of capitalist 20 percentage okay we need to conduct a sensitivity analysis of the projects and pv to variations in revenues so we can make a sensitivity analysis by a table okay so here we will make it make this table like this okay students now here we can just make a line for discrimination students and here we can make a discrimination for the first term students and here we can write for the second it is for the second and last will be for third part okay in order to make a discrimination now here we can write this is the column for pessimistic this is the column for most likely and this is the column for optimistic okay students here first part now we can make here first part is like we can mention we can make a serial number table also okay students now we can write here a so basically it is for revenues so we are given for a pessimistic it is 100 for most likely it is 600 and for optimistic it is 1200 okay now the second part for second part we can mention below b which is for costs okay for pessimistic it is given as 70 400 and 600 70 400 okay now the third part we can mention below which should be written as c is equals to c is equals to a minus b students so we can write it as a cash in flow cash inflows it 700 minus 70 it means 30 it will be 200 it will be 1200 minus 600 it means 600 okay students now the another discrimination will be like we can mention below we can consider it as d so basically discount rate is equals to cost of cost of capital students basically it will be point two because we are given as 20 percentage again point two and again point two now the another part will be here we can write for discrimination it will be e is equals to c divided by d he can write here it as a present value of cash inflows students so basically he can write it as 150 then it is 1 ,000 it will be 3 ,000 okay for c divided by d c is 30 and divided by d point 2 so it will have 1 50 200 divided by 0 .1 ,600 divided by 0 .2, which will be 3 ,000.

04:54 At the end, the last discrimination will be like this, students...

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