The results from one simulation of 5000 iterations provides the two histograms shown. As their left sliders indicate, the probability of negative NPV is sizable, about 43%, and the probability of no bonus is about 62%. Also, the IRR cell is not to be trusted because it results in an error in some scenarios. The problem is that IRR is not well defined when some of the future cash flows are negative, which happens fairly frequently.

This model is a good candidate for a sensitivity analysis. If you look at a tornado chart for NPV (not shown here), you will see that the annual growth rate is by far the biggest driver of NPV. This is not surprising, given the large standard deviation used in the model.

© Copyright 2018 - Palisade Corporation. All rights reserved