Your business has just assessed an investment in a factory and machinery to manufacture a new product that will extend the business’s range. The NPV of the project shows a clear positive NPV using the best estimates of the various input values. You have also carried out a sensitivity analysis regarding each of the input factors and created a schedule of sensibilities, based on the percentage that each factor’s value would need to move from the best estimated value to the actual value before the project’s NPV would be reduced to zero.

How would you interpret the values of the various sensitivities and how, broadly, would you react to your interpretation?

AppendixLO1