【正确答案】Calculation of expected net present value The investment project has a positive ENPV of $3,809,000. This is a mean or average NPV which will result from the projectbeing repeated many times. However, as the project is not being repeated, the NPVs associated with each future economicstate must be calculated as it is one of these NPVs which is expected to occur. The decision by management on the financialacceptability of the project will be based on these NPVs and the risk associated with each one. Workings Mean or average selling price = (25 x 0·35) + (30 x 0·5) + (35 x 0·15) = $29 per unit

【正确答案】Sensitivity analysis assesses the extent to which the net present value (NPV) of an investment project responds to changesin project variables. Two methods are commonly used: one method determines the percentage change in a project variablewhich results in a negative NPV, while the other method determines the percentage change in NPV which results from a fixedpercentage change (for example, 5%) in each project variable in turn. Whichever method is used, the key or critical projectvariables are identified as those to which the NPV is most sensitive, for example, those where the smallest percentage changeresults in a negative NPV. Sensitivity analysis is therefore concerned with calculating relative changes in project variables. When discussing risk in the context of investment appraisal, it is important to note that, unlike uncertainty, risk can bequantified and measured. The probabilities of the occurrence of particular future outcomes can be assessed, for example, andused to evaluate the volatility of future cash flows, for example, by calculating their standard deviation. The probabilities ofthe future economic states in the assessment of the investment project of Hraxin Co are an example of probability analysisand these probabilities can lead to an assessment of project risk. Sensitivity analysis is usually studied in investment appraisal in relation to understanding how risk can be incorporated in theinvestment appraisal process. While sensitivity analysis can indicate the critical variables of an investment project, however,sensitivity analysis does not give any indication of the probability of a change in any critical variable. Selling price may be acritical variable, for example, but sensitivity analysis is not able to say whether a change in selling price is likely to occur. Inthe appraisal of the investment project of Hraxin Co, the probabilities of different selling prices arising with related economicstates have come from probability analysis, not from sensitivity analysis. Sensitivity analysis will not therefore directly assist Hraxin Co in assessing the risk of the investment project. However, it doesprovide useful information which helps management to gain a deeper understanding of the investment project and whichfocuses management attention on aspects of the investment project where problems may arise.