Question

The follow two table displays the list of variables under three cases:Pessimistic, Expected and Best.

Top table lists valule of variables, and bottom lists NPV of the change of that one variable, while holding the rest of varaibles at the value under expected case.

For example, NPV of "-$1,892" is computed using market size changed to "pessimistic" (5000), while the rest of variable all kept under expected case (for example market share 30%, price 2 etc).

Variable	Pessimistic	Expected	Best
Market Size	5,000	10,000	20,000
Market share	20%	30%	50%
Price	1.9	2.0	2.2
Variable cost	1.2	1.0	0.8
Fixed cost	1,891	1,791	1,741
Initial Investment	1,900	1,500	1,000

Variable\NPV	Pessmistic	Expected	Best
Market Size	- $1,802	$1,517	$8,154
Market Share	-696	1,517	5,942
Price	853	1,517	2,844
V.C.	189	1,517	2,844
F.C.	1295	1,517	1,628
Initial investment	1208	1,517	1903

Based on this table, the NPV of the project is most sensitive to which of the following variable?

Answer 1

The net present value is most sensitive to market size if all other parameters are expected values because we can see the major deviation from 1517 both up and down to 8154 and -1802 that is maximum if we change market size. If we see in general terms a company change cost and price of products to increase market size ultimately, so all these other factors have less effect in comparison to other variables.

Rest all variables are effecting NPV less than Market size.