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BRILLIANT’S Analysis of Risk and Uncertainty in Investment Decisions 483

Most likely 12,000 4.487 53,844 3,844
Optimistic 15,000 4.487 67,305 17,305
Sensitivity analysis of Project B on the basis of NPV: (Amount in `)

NPV =
Years Condition Cash Inflow PVAF@15% PV of PV – 50,000
(`) for 8 years CF
1-8 Pessimistic 5,000 4.487 22,435 – 27,565
Most likely 12,000 4.487 53,844 3,844
Optimistic 20,000 4.487 89,740 39,740

From the above analysis it can be concluded that project B is more risky but very profitable
under optimistic conditions. It is the management policy towards risk which will decide whether
this project should be undertaken or not.
Illustration 5.2.8
From the following statement, calculate accounting break-even point and financial break-
even point for Sudha Ltd.
{ZåZ{b{IV ñQ>oQ>‘|Q> go gwYm {b{‘Q>oS> Ho$ {bE AH$mC§qQ>J ~«oH$ B©dZ nm°B§Q> VWm ’$m¶Z|{e¶b ~«oH$-B©dZ nm°B§Q> H$s
JUZm H$s{OE&

Particulars ({ddaU) Years (df©) 0 Year (df©) 1–10

Investment / BÝdoñQ>‘|Q> 20,00,000 -
Sales / goëg 1,80,000
Variable cost (66.67% of sales)/ do[aE~b H$m°ñQ> (goëg H$m 66.7%) 1,20,000

Fixed cost / {’$³ñS> H$m°ñQ> 10,000
Depreciation / S>o{à{gEeZ 20,000
Pre tax profit / àr Q>¡³g àm°{’$Q> 30,000
Taxes / Q>¡³gog 10,000

Profit after tax / àm°{’$Q> AmâQ>a Q>¡³g 20,000
Discount rate / {S>ñH$mC§Q> aoQ> 12%

Solution:
Calculation of accounting break even point:

Fixed cost + Depreciation 10,000 20,000 30,000
= =  ` 90,090
Contribution Margin Ratio 1 0.6667 [Note 1] 0.333