Cost Sensitivity Formula

Cost Sensitivity Formula

NPV Cost sensitivity may be calculated by the Following Simple formula.

Sales Sensitivity =    Net Present Value of project (NPV)

                                         PV of Variable Cost

Example

Variable Cost = 8,000

NPV = 3,000

Calculate Cost sensitivity?

Solution

Variable Cost Sensitivity =    3,000 x100

                                           8,000

= 37.5%

It means if cost increases by 37.5%, then NPV will become Zero