Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

4.5.6.1 SalesIt is possible to consider a worse dynamic for the sales of product C (the one not designed for a specificcustomer). In this case, with a reduction of 5% in annual growth and of 5% in initial output, theperformance of the project would decrease in a remarkable way. In this case, assumptions showed in thetable were made.Table 4.56 Sales of product C - Assumption1 2 3 4 5 6 7 8 9 10Baseline AssumptionInitial output= 2,000 +% of the output 60 80 200 30 2 2 2 2Sensitivity testInitial output =1,900 +% of the output 57 76 190 28.5 1.9 1.9 1.9 1.94.5.6.2 Investment costsThe other possibility is to consider a worse situation for the dynamics of some investment cost items, asshown in the following tables.An investigation into the impact of the single components of investment costs was conducted and hasunderlined the importance of building and new equipment costs.Also in this case the results of financial and economic analyses for the two items are presented for a 5%variation in the yearly absolute value.Table 4.57 Building costs – Assumption – Thousands of Euros1 2 3 4 5 6 7 8 9 10Baseline Assumption 6,000 6,000 5,000Sensitivity test (+5%) 6,300 6,300 5,250Table 4.58 New equipment costs – Assumption – Thousands of Euros1 2 3 4 5 6 7 8 9 10Baseline Assumption 10,000 14,000 18,000Sensitivity test (+5%) 10,500 14,700 18,900As requested by Point E.1. of the Application Form, the impact of parameter variation in terms ofmodification of the main performance indicators is summarised in the table below.Table 4.59 Results of the sensitivity testSensitivity TestPerformance Indicators Baseline CaseOperating CostsSales of product C (-5%)Buildings (+5%) New Equipment (+5%)FNPV(C) – M Euro -5.47 - 9.77 -6.24 -7.35FRR(C) 3.3% 1.9% 3.0% 2.8%FNPV(K) – M Euro 10.45 6.l5 10.45* 10.45*FRR(K) 9.3% 7.6% 9.3%* 9.3%*ENPV- M Euro 3.53 -1.16 2.82 1.52ERR 6.7% 5.1% 6.4% 6.0%* Buildings and new equipment costs do not affect the FNPV(K) and FRR(K)With regard to the investment costs, the analysis points out that the most critical item is new equipmentcosts. A similar variation in land cost only has a slight effect on both financial and economic profitability.191