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TASK
It is necessary to check if the project made financial sense before it is accepted. Based on the cash flow table derived in Question 2 [Hint: Provide the answers for this question even if your decision is to reject the project.]:
Show a sensitivity analysis of NPVs to changes in the output and sales, selling price, variable costs, incremental working capital, and applicable discount rate individually. Assume each of these variables can deviate from its estimated value by plus or minus 15%.
Calculate the minimum level of annual increased net cash flows necessary for the project to be accepted.
Another source of uncertainty is the expected rate of inflation. After reviewing, you realised the effect of inflation has not been adjusted for all estimates of revenues and costs. Some people were talking about a zero long-term inflation rate, but you wondered what would happen if inflation is 3% per annum.
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