Chapter 10 - Project Analysis

Questions of Session 4 (Sensitivity analysis and Scenario analysis)

3.Otobai’s staff has come up with the following revised estimate for the electric scooter project:

Optimistic Pessimistic
%Change in capital -20 60
investment
%Change in working capital -50 50
%Change in unit sold 25 -20
%Change in price 20 -25
Cost of goods sold as % sales 40 75
%Cost in fixed costs -50 70

Then conduct a sensitivity analysis using the spreadsheets. What are the principal uncertainties in

the project?

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McGraw-Hill Education.
Chapter 10 - Project Analysis

7. A project currently generates sales of 10$ million, variable costs equal 50% of sale, and fixed

costs are 2$ million. The fir’s tax rate is 21%. What are the effect of the following changes on

cash flow?

a. Sales increase from 10$ million to 11$ million.

b. Variable costs increase to 65%of sales.

8. What is the NPV of the electric scooter project under the following scenario?

Unit sales are 20% below expectations.

Unit price is 10% below expectations.

Unit variable cost remains at 50% of revenue.

Fixed costs increase by 5%.

Investment in plant and equipment and in working capital are unchanged.

Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.