NPV & IRR Sensitivity Analysis: Comparing Nakoi & Dakota Machines

Choosing Between Nakoi & Dakota: A Deep Dive into NPV & IRR Sensitivity

This analysis leverages revised information to evaluate the financial viability of two machines, Nakoi and Dakota, using key metrics like Net Present Value (NPV) and Internal Rate of Return (IRR). By applying different growth rate scenarios, we aim to provide a robust assessment to guide investment decisions.

Initial Analysis:

Initial calculations, utilizing the revised information, indicate that the Dakota machine demonstrates a higher NPV and IRR compared to the Nakoi machine. This suggests Dakota is the more favorable investment option based on initial data.

Impact of Varying Growth Rates:

To gain a comprehensive understanding, we analyze the impact of fluctuating growth rates on both machines:

• Scenario 1: Revenue Growth: Increasing the annual growth rate (3%, 4%, 5%) for both machines resulted in a decrease in both NPV and IRR. However, Dakota consistently maintained its lead with a higher NPV and IRR across all growth rates.

• Scenario 2: Cost Growth: When cash cost growth outpaced selling price growth (3% selling price growth vs. 4% & 5% cost growth), both machines experienced a decline in NPV and IRR. Despite this, Dakota remained the preferred choice due to its consistently higher NPV and IRR.

Wilson's Concerns & Recommendations:

The analysis validates Wilson's concerns regarding the impact of growth rate assumptions on investment attractiveness. Key takeaways for Wilson:

• Growth Rate Scrutiny: Carefully evaluate and justify growth rate assumptions, ensuring they are realistic and grounded in thorough market analysis.* Sensitivity Analysis: Conduct comprehensive sensitivity analyses to assess the influence of various factors, such as selling price and cash cost fluctuations, on NPV and IRR. This unveils potential risks and uncertainties associated with each investment option.

Conclusion:

Thorough and robust financial analysis is crucial for sound investment decisions. While the Dakota machine consistently demonstrates a higher NPV and IRR across various scenarios, it's vital to consider all factors and conduct rigorous sensitivity analysis. This approach empowers informed decision-making and minimizes potential risks.