EXERCISE 7
RISK ANALYSIS AND SENSITIVITY ANALYSIS
The following is an extract from a 2015 advertisement by a pensions company seeking
investments in a “managed fund”.
annual discount rate
Initial invest
return - I yr
return - 2nd year
return - 3rd year
Return – 4th year
NPV
0.15
-50,000.00
11,000.00
23,000.00
18,500.00
10,000.00
?
Set up a spreadsheet to calculate the NPV of the investment. Also perform sensitivity analysis
for the following cases:
i)
ii)
iii)
Vary the rate from 15% to 10%
Vary the Initial investment to 25,000 and to 60,000
Simultaneously varying both rate and initial investment (Two variable sensitivity
analysis)