Engineering Inc. (EI)

EI is considering to invest in a new project with cashflow data: Initial outflow $900 and follow by 4 yearly $300 inflow at year end. After evaluating the nature and risk of the project the finance manager feels the appropriate discount rate is 10% - a very competitive rate and at this rate the NPV of this project is $50.96.

The Vice President of EI is pleased with this outcome (positive NPV) but caution about the estimate and suggest you (the Finance Manager) to perform sensitivity analysis:

1. How much initial cost ($900) has to change to cause NPV = 0?
2. How much annual inflow has to drop on average to cause NPV = O?
3. How much cost of capital has to increase to cause NPV = 0

Write a brief report to conclude your findings from your sensitivity analysis: