Sales price per unit, $290, is our pessimistic sales price.

Our optimistic sales price, $380 per unit.

Okay, and so on and so forth.

For variable costs, $230, as a pessimistic variable costs per unit.

They've increased from $193.

Alternatively, an optimistic estimate has it then decreasing to $175.

So the key to the sensitivity analysis approach is to recalculate the NPV of

the project using pessimistic and optimistic estimates for

each variable in turn, whilst keeping the other variables at their expected values.

So working first with sales volume, we calculate an NPV that's

pessimistic using 22,000 as opposed to 25,500 units

per annum keeping the other variables at their expected values about

$193 variable cost per unit and $347 as a sales price per unit.

And when we do that, we end up with an NPV of minus $74,545.

Now we've considered the optimistic estimate for sales volume.

29,000 units per annum.

Keeping the other variables at their expected values once again,

we have simply substituted these higher sales figures per annum,

sales volume and we end up with an NPV of a bit over $2.6 million.

So the take away here, what we do next,

is compare the pessimistic NPV with the optimistic NPV.

So subtract, minus $74,545 from 2,606,000 and

we end up with a range of $2,680,000.

Now what that reflects is the sensitivity of the project to move in-between

optimistic and pessimistic estimates.