Scenario analysis

In the real-world scenario, usually, one variable does not change at a time while there will be
simultaneous changes. For example; there could be an extension in the year of the project along with a
reduction in the cost of capital. Using scenario analysis, we can evaluate possible scenarios and using
that predict the future. In appendix – shows changes in cumulative present value along with changes in
the cost of capital.

When the cost of capital decreases by 10% 8% and when the lifespan of the project decreases by 3
years 5 years, as a result, the present value of the future costs decreases from £ 28,132 £ 38,348.
Hence, it represents a decreased cost of £ 10,216. (Appendix -) As a percentage of (1%)

When the cost of capital increases by 10% 12% and when the lifespan of the project is increased by 3
years 5 years, it represents the increases of the present value of future costs by £ 28,132 £23,633,
which is an increase by £ 4,499in the cost or

1% = 

Chart Title
200,000

150,000

100,000

50,000

0
Y0 Y1 Y2 Y3 Y4
-50,000

-100,000

-150,000

-200,000

8% 10% 12%

8% 10% 12%
Y0 -136,000 -136,000 -136,000
Y1 43,222 39,964 36,821
Y2 148,332 141,286 134,557
Y3 113,771 108,576 103,569
Y4 -38,348 -28,132 -23,633