Hi guys, Could someone explain how schweser has made its calculation for a company’s NPV under sensitivity analysis? cost of capital = 12%, initial investment outlay = 52,000, terminal year cash inflow = 33214, cash flows = 14605, 15498, 14666, 14218 for years 1-4. NPV = 13978. Deviation from base level Sales Variable cost/unit Cost of capital Decrease by 10% -601 22726 16058 Base point 13978 13978 13978 Increase by 10% 28557 5230 11993 how have they got these figures for decrease and increase? i cant seem to arrive at it.
can you please provide a page number reference?
schweser book 2 page 119 and 120
looks like my friend you are using outdated material from a previous year. It is book 3 that has corp fin this year, and 119, 120 pages are part of Dividend policy stuff.
sharmayur Wrote: ------------------------------------------------------- > Hi guys, > > Could someone explain how schweser has made its > calculation for a company’s NPV under sensitivity > analysis? > > cost of capital = 12%, > initial investment outlay = 52,000, > terminal year cash inflow = 33214, > cash flows = 14605, 15498, 14666, 14218 for years > 1-4. > NPV = 13978. > > Deviation from base level Sales > Variable cost/unit Cost of capital > Decrease by 10% -601 > 22726 16058 > Base point > 13978 13978 > 13978 > Increase by 10% 28557 > 5230 11993 > > how have they got these figures for decrease and > increase? i cant seem to arrive at it. I don’t have the schweser books either - but it should just be if sales decrease 10%, instead of an NPV of 13978, NPV will be -601. If sales increase by 10%, NPV will go from 13978 to 28557. Same deal for the other columns. The CFA text has a good diagram of a Sensitivity Analysis table on page 45, Reading 28 if needed. Edit: If you are looking how to do the actual calculation - the page prior (page 44) on CFAI text has a clear description of the calculation. You can plug and play with the different item costs and should be able to tie the figures together.