Untitled-29

136 Financial Management

600 700 800 900 1000

P

100

200

300

400

500

600

-100

-200

-300

700

The same relationship is shown graphically in Table 6.4

Composite Picture

A useful way of presenting the results of sensitivity analysis is to shown how net

present value behaves for different percentages of unfavorable changes (from their

most likely values) in the basic variables. The behavior of net present value when there

is 5 per cent, 10 percent, 15 per cent, and 20 per cent unfavorable change in r, other

factors remaining unchanged at their most likely levels, is shown as follows:

Figure 6.5: Relationship Between P and NPV

Percentage unfavourable variation Value of r Net present value

5 10.5 60,418

10 11.0 42,700

15 11.5 24,681

20 12.0 7,525

The behaviour of net present value when there is 5 percent, 10 percent, 15 percent and

20 percent unfavourable variation in P is shown as follows:

Percentage unfavourble variation Valueof P Net present value

5 .713 (10, 308)

10 .575 (102,500)

15 .638 (192,267)

20 .600 (284,384)

Exhibit 6.5 shows graphically the behaviour of net present value for various unfavourable

percentage variations of r and P. Such a visual presentation is helpful in identifying

variables, which are crucial for the success of the project.