What should I do next?! You are to conduct an extensive sensitivity analysis on

Question

What should I do next?!

You are to conduct an extensive sensitivity analysis on the problem described below. The sensitivity approach will consist of two parts (a) A range approach where the most optimistic, most likely, and most pessimistic values of the dependent variables N PV and IRR are determined. (b) A range approach where the mean value is determined for each independent variable and then each variable is allowed to vary ±20% about that mean while all other independent variables are held constant. Create spider plots for NPV and IRR usingg the recsults, The project life is 7 years and the MARR is 15%. The initial investment is given by a uniform distribution between $200,000 and $300,000 The annual profit is given by a triangular distribution that has a minimum value of vear, a mode of 367 ear, and a maximum valuc o car The salvage valuc of the investment is given by a triangular distribution that has a minimum value of $60,000, a mode of 75,000, and a maximum value of $85,000

Explanation / Answer

Your have to take the modal cashflows as the base mean for the second part and create a range approach just like above with a deviation of +/- 20% in cashflows.

The most likely cashflow is to be taken as the base case (mean) in this approach.

Year -20% Base case +20% 0 -$200,000 -$250,000 -$300,000 1 $54,000 $67,500 $81,000 2 $54,000 $67,500 $81,000 3 $54,000 $67,500 $81,000 4 $54,000 $67,500 $81,000 5 $54,000 $67,500 $81,000 6 $54,000 $67,500 $81,000 7 $114,000 $142,500 $171,000 NPW $41,059.90 $51,324.88 $61,589.85 IRR 21.89% 21.89% 21.89%

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