JKL Ltd. is considering a project for which the following estimates are available: Particulars ₹ Initial Cost of the project 20,00,00,000 Sales…

Calculation of NPV NPV = - 20,00,00,000 + 4,00,000 x 300 x PVF (12%, 1) + 6,00,000 x 300 x PVF (12%, 2) + 6,00,000 x 300 x PVF (12%, 3) = - 20,00,00,000 + 10,71,60,000 + 14,34,60,000 + 12,81,60,000 = 37,87,80,000 – 20,00,00,000 = 17,87,80,000 Measurement of sensitivity is as follows: (i) Sales Price Let the sale price/Unit be S so that the project would break even with 0 NPV. .. 20,00,00,000 = 4,00,000 x (S – 500) x PVF (12%, 1) + 6,00,000 x (S – 500) x PVF (12%, 2) + 6,00,000 x (S – 500) x PVF (12%, 3) S – 500 = 20,00,00,000/12,62,600 S - 500 = 158.40 S = 658.40 which represents a fall of (800-658.40)/800 Or 0.177 or 17.70% (ii) Unit Cost Let the Cost/Unit be C so that the project would break even with 0 NPV with sales price = 800. ... 20,00,00,000 = 4,00,000 x (800 – C) x PVF (12%, 1) + 6,00,000 x (800 – C) x PVF (12%, 2) + 6,00,000 x (800 – C) x PVF (12%, 3) 800 – C = 20,00,00,000/12,62,600 800 - C = 158.40 C = 641.60 which represents an increase of (641.60 - 500)/500 Or 0.2832or 28.32% Or If sale price = 800.00 the cost price required to give a margin of 158.40 i.e., (₹ 800 - 158.40) or - 641.60 which would represent a rise of 28.32% i.e., (641.60-500)/500 x 100 (iii) Sales volume The requisite percentage fall is: - 17,87,80,000/37,87,80,000 × 100 = 47.20% (iv) Since PV of inflows remains at 37,87,80,000 the initial outlay must also be the same. ... Percentage rise = 17,87,80,000/20,00,00,000 × 100 = 89.39%.