Suppose an investment of $24,000 now (time zero) and receive of $7,000 per year over the first three years and then annual income of $5000 for another 3 years (years 4, 5, and 6). At the end of year 6 there will be another income (Salvage value) of $3,000. Assume annual interest rate is 10%. Conduct a sensitivity analysis by providing sensitivity graph for the cases of -10%, -5%, 0% (base case), 5%, and 10% variation on annual incomes, salvage value, and interest rate. Conclude how sensitive is the investment on variations and under what range of variation the investment is justified.

Answer rating: 100% (QA)

To conduct a sensitivity analysis we will first calculate the Net Present Value NPV of the investment for the base case scenario 0 variation using the ... View the full answer