A project has an initial investment of 100. You have come up with the following estimates of the projects with cash flows.
$$\begin{array} { l r c c }
&\text { Pessimistic NPV } & \text { Most Likely } & \text { Optimistic } \
\text { Revenues } & 15 & 20 & 25 \
\text { Costs } & - 10 & - 8 & - 5
\end{array}$$
If the cash flows are perpetuities and the cost of capital is 10%. What does a sensitivity analysis of NPV (no taxes) show?
A) -50, 20, +100
B) -100, -50, +80
C) -50, +50, +70
D) None of the above

Question

A project has an initial investment of 100. You have come up with the following estimates of the projects with cash flows.
$$\begin{array} { l r c c } 
  &\text { Pessimistic NPV  } & \text { Most Likely } & \text { Optimistic } \
\text { Revenues } & 15 & 20 & 25 \
\text { Costs } & - 10 & - 8 & - 5
\end{array}$$
If the cash flows are perpetuities and the cost of capital is 10%. What does a sensitivity analysis of NPV (no taxes) show?
A) -50, 20, +100
B) -100, -50, +80
C) -50, +50, +70
D) None of the above

Quizplus · Accepted Answer

The sensitivity analysis shows that the NPV is most sensitive to changes in revenues, followed by changes in costs. A 1% increase in revenues will increase the NPV by 2%, while a 1% increase in costs will decrease the NPV by 1%.

A Project Has an Initial Investment of 100 If the Cash Flows Are Perpetuities and the Cost of Come