W3

In the workshop, stand-alone risk is assessed using three practical techniques. Which option lists the three correctly?

Which statement best captures a key caveat of one-at-a-time sensitivity analysis discussed in the slides?

International Widget Company: Initial investment is £150,000 at year 0. The project generates £20,000 in year 1, and the payoff then grows by 2% per year in real terms through year 10. Salvage value in year 10 is £100,000 in nominal terms. Expected inflation is 3% per year. The firm’s nominal cost of capital is 7.12%. What is the project’s NPV (approx.)?

International Widget Company: Revenues = £9Q and COGS = £10,000 + £6Q, so annual cash flow is CF = 3Q − 10,000 (for years 1–10). Initial investment is £150,000 and salvage value is £100,775 at year 10. With a 4% discount rate, what is the NPV break-even output Q (units per year, approx.)?

A project has a degree of operating leverage (DOL) of 3.0 at the current output level. If sales fall by 2% (and the cost structure is unchanged), what is the approximate percentage change in profits?

KBS Solar (Airline Crash scenario): Initial investment is −£1,500m (year 0). Annual cash flow for years 1–5 is −£198m. Discount rate is 15%. What is the NPV (approx.)?