Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

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Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Blooper’s analysts have come up with the following revised estimates for its magnesium mine:

Pessimistic Optimistic
Initial Investment +30% -15%
Revenues -20% +20%
Variable Costs +25% -25%
Fixed Cost +20% -20%
Working Capital +35% -30%

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

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A. Inputs
Initial investment ($ thousands) 10,000
Salvage value ($ thousands) 2,000
Initial revenues ($ thousands) 15,000
Variable costs (% of revenues) 40.0%
Initial fixed costs ($ thousands) 4,000
Initial total expenses ($ thousands) 10,000
Inflation rate (%) 5.0%
Discount rate (%) 12.0%
Receivables (% of sales) 16.7%
Inventory (% of next year’s costs) 15.0%
Tax rate (%) 35.0%
Year: 0 1 2 3 4 5 6
B. Fixed assets
Investments in fixed assets 10,000
Sales of fixed assets 1,300
Cash flow from fixed assets -10,000 1,300
C. Operating cash flow
Revenues 15,000 15,750 16,538 17,364 18,233
Variable expenses 6,000 6,300 6,615 6,946 7,293
Fixed expenses 4,000 4,200 4,410 4,631 4,862
Depreciation 2,000 2,000 2,000 2,000 2,000
Pretax profit 3,000 3,250 3,513 3,788 4,078
Tax 1,050 1,138 1,229 1,326 1,427
Profit after tax 1,950 2,113 2,283 2,462 2,650
Operating cash flow 3,950 4,113 4,283 4,462 4,650
D. Working capital
Working capital 1,500 4,075 4,279 4,493 4,717 3,039 0
Change in working capital 1,500 2,575 204 214 225 -1,679 -3,039
Cash flow from investment in working capital -1,500 -2,575 -204 -214 -225 1,679 3,039
0.408 0.408 0.408 0.408 0.250
E. Project valuation
Total project cash flow -11,500 1,375 3,909 4,069 4,238 6,329 4,339
Project NPV
Pessmistic Expected Optimistic
Initial Investment
Revenues
Variable Costs
Fixed costs
Working Capital

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

Conduct a sensitivity analysis for each variable and range and compute the NPV for each.

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