# My Paper

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Submitted By omoh56
Words 350
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CALCULATIONS OF NPV AND SENSITIVITY ANALYSIS
NPV calculation using 13% as the cost of capital
FOR PROJECT A
Cash Flows DCF (13%) PV
350,000 0.8850 309,750
350,000 0.7831 274,085
350,000 0.6931 242,585 826,420
NPV = 826,420 – 735,000
NPV = 91,420

FOR PROJECT B
Cash Flows DCF (13%) PV
300,000 0.8850 265,500
300,000 0.7831 234,930
300,000 0.6931 207,930 708,360
NPV = 708,360 – 690,000
NPV = 18,360

FOR PROJECT C
Cash Flows DCF (13%) PV
200,000 0.8850 177,000
200,000 0.7831 156,620
200,000 0.6931 138,620 472,240
NPV = 472,240 – 600,000
NPV = (127,760)

Assuming the cost of capital increase to 15%, the new NPV will be as follows
FOR PROJECT A
Cash Flows DCF (15%) PV
350,000 0.8696 304,360
350,000 0.7561 264,635
350,000 0.6575 230,125 799,120
NPV = 799,120 – 735,000
NPV = 64,120

FOR PROJECT B
Cash Flows DCF (15%) PV
300,000 0.8696 260,880
300,000 0.7561 226,830
300,000 0.6575 197,250 684,960
NPV = 684,960 – 690,000
NPV = (5,040)

FOR PROJECT C
Cash Flows DCF (15%) PV
200,000 0.8696 173,920
200,000 0.7561 151,220
200,000 0.6575 131,500 456,640
NPV = 456,640 – 600,000
NPV = (143,360)
At this point it is necessary for one to determine the sensitivity of the change in NPV of the three projects due to the increase in cost of capital.

SUMMARY OF NPVS’ CALCULATIONS

PROJECT | NPV @ 13% | NPV @ 15% | % CHANGE IN NPV | A | 91,420 | 64,120 | * 29.86% | B | 18,360 | (5,040) | * 127.45% | C | (127,760) | (143,360) | * 12.2% |

From the table above it is clear that all three projects had a negative percentage change which means that their NPV drops but sensitively project a had a reasonable change as it still have a positive NPV with 29.86% change.

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