ACCA FM · Chapter 9 · Question 1 of 8
A project has an NPV of $42,000. The present value of sales revenue is $600,000, the present value of contribution is $280,000 and the present value of variable costs is $320,000. By what percentage could the selling price fall before the project's NPV becomes zero?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 7.0%
Explanation
Sensitivity = NPV / PV of the cash flow affected. A change in selling price affects sales revenue only, so sensitivity = 42,000 / 600,000 = 7.0%. 15.0% is the sensitivity to sales volume, which changes contribution, and 13.1% is the sensitivity to variable costs.
More Risk and uncertainty in investment appraisal MCQs
- Q3A project has the following possible NPVs: -$20,000 with probability 0.3, $40,000 with probability 0.5 and $90,000 with probability 0.2…
- Q4Which of the following correctly distinguishes risk from uncertainty in investment appraisal?
- Q5Which of the following is a limitation of sensitivity analysis?
- Q6A project costs $70,000 now. The year 1 cash inflow will be $50,000 (probability 0.6) or $30,000 (probability 0.4). Independently, the…
- Q7A project has an initial investment of $250,000 and an NPV of $30,000. By what percentage could the initial investment increase before the…