The estimated cash flows of an investment project are shown below. Using an interest rate of 2% per year, analyze the sensitivity of the PW to changes in initial investment and annual revenue, and determine the breakeven percentage changes of these two factors.

Question

The estimated cash flows of an investment project are shown below.  Using an interest rate of 2% per year, analyze the sensitivity of the PW to changes in initial investment and annual revenue, and determine the breakeven percentage changes of these two factors.

Quizplus · Accepted Answer

The Answer is Sensitivity to changes in initial investment:
+5%: PW2%) = - $37,899.95
- 5%: PW2%) = - $32,399.95
Breakeven percent change = - 64%
Sensitivity to changes in annual revenue:
+10%: PW2%) = - $30,022.10
- 10%: PW2%) = - $40,277.80
Breakeven percent change = 68.55%

The Estimated Cash Flows of an Investment Project Are Shown