FINANCIAL PROFITABILITY AND SENSITIVITY ANALYSIS OF OILPALM

CULTIVATION IN WEST GODAVARI DISTRICT OF ANDHRA PRADESH

*1
K. Solmon Raju Paul, 2B. Sarath Babu and 3CH. Satish Kumar
1
Assistant Research Officer, CCS, 2 &3 PG Student,
Department of Agricultural Economics, Agricultural College, ANGRAU, Bapatla.
*
Corresponding author e-mail: kambhampatyp@yahoo.com & ksolmonrajupaul@gmail.com

Abstract:

Oil palm is the worlds highest yielding of oil crop, with an output 5-10 times greater
per hectare than other leading vegetable oils. The study examines the financial and economic
aspects of establishing an oil palm plantation in West Godavari district of Andhra Pradesh. A
spreadsheet model was used to develop and calculate the Net Present Value (NPV), Internal
Rate of Return (IRR) and Benefit Cost ratio (BCR). Sensitivity analysis of NPV to the default
discount rate (11.5%) was included. A positive NPV of Rs. 157487, IRR at 41.77% and BCR
of 1.63. Establishing an oil palm plantation to be a profitable investment. Change in selling
price of FFB is more sensitive to NPV than a change in total cost and total revenue.

Key words: NPV, BCR, IRR and Sensitivity analysis

INTRODUCTION:

India is one of the major oilseeds grower and importer of edible oils. Indias vegetable
oil economy is worlds fourth largest after the USA, China & Brazil. The oilseed accounts for
13% of the Gross Cropped Area, 3% of the Gross National Product and 10% value of all
agricultural commodities. This sector has recorded annual growth rate of the area, production
and yield @ 2.44%, 5.47% and 2.96% respectively during last decade (1999-2009). The
diverse agro-ecological conditions in the country are favourable for growing nine annual
oilseed crops, which include seven edible oilseeds (groundnut, rapeseed & mustard, soybean,
sunflower, sesame, safflower and niger) and two non-edible oilseeds (castor and linseed).
Oilseeds cultivation is undertaken across the country in about 27 million hectares mainly on
marginal lands, of which 72% is confined to rainfed farming. During the last few years, the
domestic consumption of edible oils has increased substantially and has touched the level of
18.90 million tonnes in 2011-12 and is likely to increase further. With per capita consumption
of vegetable oils at the rate of 16 kg/year/person for a projected population of 1276 million,
the total vegetable oils demand is likely to touch 20.4 million tonnes by 2017. A substantial
portion of our requirement of edible oil is met through import of palm oil from Indonesia and
Malaysia. It is, therefore, necessary to exploit domestic resources to maximize production to
ensure edible oil security for the country. Oil palm is comparatively a new crop in India and
is the highest vegetable oil yielding perennial crop. With quality planting materials, irrigation
and proper management, there is the potential of achieving 20-30 MT Fresh Fruit Bunches
(FFBs) per ha after attaining the age of 5 years. Therefore, there is an urgent need to intensify
efforts for area expansion under oil palm to enhance palm oil production in the country.
Shortage of edible oils assumed a crisis situation of perennial nature during the 1980s and
these prompted government agencies to evolve long term and short term mechanisms to step
up production and productivity of oil seeds in the country. Part of the efforts was the
launching of the Technology Mission on Oil Seeds by the Ministry of Agriculture of the
Government of India in 1986 to address the problem (Rethinam, 1992). The major objective
of the mission was to increase production through the improvement of productivity and
providing better infrastructural facilities like irrigation. The introduction of high potential
crops has been considered as a viable option to the conventional ones as a long-term measure
to satisfy the increasing demand for edible oils. Palm oil is the worlds highest yielding oil
crop, with an output 510 times greater per hectare than other leading vegetable oils.
Combined with historically low prices, relative shelf stability, and reported nutritional
benefits (Bethe, 2010), palm oil leverages natural advantages that position it as a likely long-
term staple of the global diet. Rapidly expanding populations and changing consumption
patterns, as well as increasing demand from the bioenergy and oleo chemicals industries,
have resulted in sustained high prices for crude palm oil. These market forces have driven the
enormous growth of the palm oil industry in recent decades. Analysts predict further palm oil
demand acceleration in the near term potentially a 36% increase by 2012 over 2010
baselines, and more than 65% growth by 2020 (Mielke, 2011). In this context, an attempt has
been made to conduct a financial assessment of oil palm cultivation from the data gathered
from the oil Palm cultivators of west Godavari District in Andhra Pradesh.

METHODOLOGY:

This paper explores the social and economic basis of oil palm cultivation in West
Godavari district in the state of Andhra Pradesh. The primary data was collected from 200
farmers who are cultivating oil palm, using survey type research with a cross-sectional
design. The survey involved completing a questionnaire covering financial aspects of oil
palm cultivation (Appendix 1) during a face-to-face interview with each farmer. In this study,
the financial return of oil Palm is estimated by considering the financial aspects like farmers
income on oil Palm and income on intercrop. This did not include any externalities. Financial
performance is evaluated in terms of Net Present Value (NPV), Benefit-Cost Ratio (BCR)
and Internal Rate of Return (IRR) over a period of 25 years. The costs of production taken
into account are establishment cost, input cost and labour cost. Establishment costs are
incurred during the first years of planting and include clearing and preparation of the land,
cost of seedling and planting. The input costs include fertilizer cost, plant protection
chemicals, the cost of weedicides, pruning, mulching, harvesting, fencing etc. Labour cost
incurred on fertilizing, pruning weeding mulching, harvesting, bunch loading etc. To evaluate
the financial performance of oil Palm, construct a spreadsheet model to describe the revenue
and costs associated with oil palm plantation over 25 years. It is considered suitable to
determine the cash-ow. The Net present value (NPV) was used to determine the overall
nancial performance of the project (Brent, 1998; Sugden and Williams, 1990). Annual
income and returns were estimated for 25 years and then discounted to present values. The
NPV of the project was calculated and derived from the total discounted income and costs.
The net present value of a system over a period of time was derived by using Equation 1.
Where, Benefit in each year(Bt), Costs in each year (Ct), time period (t), the number of
years(n), discount rate (d).

NPV = Equation 1

The internal rate of return (IRR) compares a number of benets and costs. IRR is the
value of the discount rate at which the present value of expected investment returns equal to
the present value of investment expenditure. It is interest income expected from the
investment plan. This breakthrough discount rate is the value of cash outows equal to the
value of cash inows. It is calculated by using Equation 2.

IRR = +

Equation 2

Benefit Cost Ratio (BCR) compare the present worth of costs with present worth of
benefits. To compute the BCR equation 3 is used. Where, Benefit in each year(Bt), Costs in
each year (Ct), time period (t), the number of years(n), discount rate (d).
 BCR = Equation 3

ANALYSIS AND INTERPRETATION:

The yield depends on the maturity of the oil Palm. It will normally start from fourth
year onwards so that the first fruits are borne in the fourth year. The yield of oil palm can be
affected by many factors like age of oil Palm, unusual periods of drought, prolonged heavy
rain etc. The profit level is influenced by planting density, yield and market price. The market
price of this crop fluctuates; the FFB price has recently been increasing. When the survey was
conducted the average market price was Rs.6500 per tonne.

Other data required for the calculations are discount rate and the project life (Number
of years for discounting). In attaching values to the inputs and outputs, constant prices are
assumed. The discounted sum of total revenue (also known as the present value of benefit)
and the discounted sum of the total cost (Present value of cost) are calculated annually over
25 years using an interest rate of 11.5%.

Figure. 1 Estimated total annual cost, annual revenue, profit and discounted profit in
per acre of oil Palm Production by 200 farmers in west Godavari District with a market
selling price of Rs. 6500/tonne. Fresh Fruit Bunches and long-term interest rate 11.5%.

The below fig. 1 shows the pattern of annual cost and returns for oil palm production
for 25 years and table no. gives a detailed cash flow. Costs are high in the first years because
of establishment costs incurred in the clearing, preparing the land and planting the oil palm
plants. There is no revenue during the first three years because the oil palm trees starts
producing Fresh Fruit Bunches from the fourth year. In the fourth year also the revenue is
negative due to low yield and high costs. But in the oil Palm cultivation, even in the initial
four years, considerable revenue is obtained through the cultivation of intercrop. Revenue
starts to climb steeply from the fifth year and continues to increase annually until ninth year.
In the following years, income begins to fluctuate but remains fairly stable until the 19th year,
after which it begins to decline due to the age of the (over mature) trees.
Fig.1 Estimated total annual cost, annual revenue, profit and discounted profit per acre of oil
palm production in West Godavari District of Andhra Pradesh.

Applying the interest rate of 11.5% the discounted sum of total revenue is Rs. 407909
and the present value of total costs is Rs. 250421. By subtracting the present value of total
costs from discounted sum of total revenue NPV is obtained for oil Palm cultivation at Rs.
157487. By calculating the ratio of these two values BCR of 1.63 is obtained. High positive
NPV indicated that the soundness of the investment made in oil farm orchards. The BC ratio
was 1.63 indicated that a rupee invested in oil farm orchards would fetch 1.63 rupees and this
proved profitability of oil farm cultivation. So the investment of oil farm cultivation was
economically feasible. IRR was 41.77% which was much higher than the bank rate of interest
on long term loans and hence the oil farm enterprise is economically feasible. It is evident
from the above discussion that the investment on oil farm orchard is profitable proposition.

Sensitivity analysis:

Sensitivity analysis facilitates us to assess the economic risks. We explore how strong
the oil palm cultivation from the financial perspective may appear within shifting
marketplace conditions. All financial indicators are affected by total costs, change in income,
change in discount rate and selling price. The analysis was done by changing financial
indicators for different possible changes in supposed circumstances. Results show how
sensitive is the analysis to change in some factors.

We test the sensitivity of the system to changes in oil palm total cost, change in
income, selling price and change in discount rate. For the accompanying oil palm plantations
play out the affectability investigation for the four distinct instances of

i. Increasing cost of capital

ii. Estimation of the cost of the project due to the different risks involved

iii. Uncertainties resulting due to the difference in the price receivables

iv. Instabilities resulting due to the difference in the selling price

Case I: Increasing cost of capital

Total cost Total return Discount factor at 11.5 % Discount factor at 20 % Discount factor at 30 %
of total cost of total cost of total cost
(25 years) (25 years)
Total Total return Total Total return Total Total return
cost cost cost

832780 1662175 250421 407909 145510 197621 94793 108586

NPV 157487 NPV 52110 NPV 13792

BCR 1.63 BCR 1.35 BCR 1.14

Table. 1 Increasing cost of capital

From the above table, the computation of the NPV and BCR at different costs of
capital indicates that the oil palm is feasible and profitable even at 30 percent discount rate.
At 30 percentages discount rate also there exists a positive NPV and BCR of more than one.
The exercise indicates the high yielding capacity of the oil palm even at high discount rates.
 Fig. 2 Increasing cost of capital

Case II: Estimation of the cost of the project due to increase in total cost

Total cost Total return Discount factor at 11.5 % Discount factor at 20 % Discount factor at 30 %
of total cost of total cost of total cost
(25 years) (25 years)
Total Total return Total Total return Total Total return
cost cost cost

832780 1662175 250421 407909 145510 197621 94793 108586

NPV 157487 NPV 52110 NPV 13792

BCR 1.63 BCR 1.35 BCR 1.14

Table.2 Changes in Total cost

From above table on increasing the cost of the oil palm taking into the consideration,
the different risks involved the computed NPV and the BCR values indicate the oil palm is
feasible and economical up to a discount level rate of less than 30 percent cost increase. At 30
percent increase in the total cost of the oil palm there exists a positive NPV and BCR of more
than one.
 Fig. 3 Changes in total cost

Case III: Uncertainties resulting due to the difference in the price receivables

Total Total Discount factor at Decrease Discounted Decrease Discounted Decrease Discounted
cost return 11.5% in total total in total total in total total
returns returns returns returns returns returns
(25 (25 Total total by 10% decrease by 20% decrease by 30% decrease
years) years) cost returns by 10% at by 20% at by 30% at
11.5% D.F. 11.5% D.F. 11.5% D.F.

832780 1662175 250421 407909 1552702 367118 1380180 326327 1207657 285536

NPV 157487 NPV 116696 NPV 75905 NPV 35114

BCR 1.63 BCR 1.46 BCR 1.30 BCR 1.14

Table.3 Changes in total returns

From the above table the uncertainties in the oil palm profits can be sensitized by the
ex-ante approach of reducing the anticipated oil palm profits at 10,20 and 30 percentages.
The computed NPV and BCR ratios indicate that the project can withstand uncertainties. The
NPV and BCR at 30 percentage reduction in yield in the oil palm benefits were found to be
Rs. 35,114 and 1.14 respectively.
 Fig. 4 Changes in total returns

Case IV: Instabilities resulting due to the difference in the selling price

Total Total Discount factor at Decrease Discounted Decrease Discounted Decrease Discounted
cost return 11.5% in selling selling in selling selling in selling selling
price by price price by price price by price
(25 (25 Total total 10% decrease 20% decrease 30% decrease
years) years) cost returns by 10% at by 20% at by 30% at
11.5% D.F. 11.5% D.F. 11.5% D.F.

832780 1662175 250421 407909 1598280 380927 1471335 353946 1344390 326965

NPV 157487 NPV 130506 NPV 103524 NPV 76543

BCR 1.63 BCR 1.52 BCR 1.41 BCR 1.30

Table.4 Changes in selling price

From the above table the instabilities in the oil palm benefits can be sharpened by the
reverse approach of diminishing the foreseen oil palm benefits at 10,20 and 30 percentages.
The registered NPV and BCR proportions demonstrate that the oil palm cultivation can
withstand instabilities. The NPV and BCR at 30 percentage lessening in yield in the oil palm
there exist positive NPV and BCR of more than one.
 Fig. 5 Changes in selling price

Conclusion:

In this study the economic analysis of oil palm plantation was developed. The
practical part calculates the NPV, BCR and IRR of oil palm for 25 years long period with
incorporation of 11.5% discount rate the discounted total returns Rs. 407909 and the present
value of total cost is Rs.250421. The NPV of the oil palm is positive at 157487 and indicates
that this investment is good and profitable, BCR is 1.63 and IRR is 41.77%. Sensitivity to
change in total cost and total revenue up to 30% of increase in total cost and decrease in total
revenue. The sensitivity analysis shows that change in selling price of oil palm is more
sensitive than change in total cos and total revenue. This study presents 10, 20 and 30 percent
change in selling price of oil palm causes change in NPV by Rs.1302445, Rs. 103524 and Rs.
76543 respectively. Whereas, 10, 20 and 30 percent change in total cost make Rs. 132445,
Rs. 107402 and Rs. 82360 respectively and 10, 20 and 30 percent change in total returns is
Rs. 116696, Rs. 75905 and Rs. 35114 respectively in NPV difference. Discount rate also one
of the factor affecting NPV, when the discount rate increases to 30% the NPV reduced by
Rs. 157487 to Rs. 13792 conversely with lowering the discount rate at 20% the NPV
increases by 13792 to 52110.
 Appendix 1
Age of oil 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total
palm (years)

COSTS

Land
4937 2216 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7152
preparation

Cost of
1425 225 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1650
seedlings

Transport
cost of 1685 600 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2285
seedlings

Cost of
planting
(digging, 2850 450 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3300
filling and
planting)

Manures&
2000 2000 2000 2000 8590 6425 10046 10340 15350 17500 11250 16875 12500 12500 14210 14085 17290 10000 10000 13750 10000 10000 10000 10000 10000 258711
fertilizers

Plant
protection 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 30000
chemicals

Weedicide
1300 2400 2300 4480 3780 2780 2850 3425 3265 2590 2600 3500 2550 3050 4225 3830 1340 1300 2690 2850 2925 3265 2390 2600 2300 70585
application

Prunning 0 0 0 500 965 1795 1075 760 895 1050 1050 1140 1140 1250 1450 1425 1250 1060 1325 1325 1350 1480 1350 1350 1325 26310

Mulching 0 0 500 965 1510 1157 660 475 712 1054 579 250 570 570 983 960 550 570 450 570 550 450 450 550 450 15535

Harvesting
& collecting
0 0 0 800 990 2850 3516 6682 6125 4200 4600 3250 3800 3800 3950 5550 4942 10000 6750 6258 6782 10000 6525 4942 3950 110262
fruit
bunches

Bunch
0 0 0 600 600 750 750 750 920 920 920 1200 1200 1200 1350 1350 1500 1620 1620 1350 1350 1350 1200 1200 1200 24900
loading

Permanent
6000 6000 7090 7090 9000 9000 7090 8250 8250 9000 9000 12000 12000 9000 8250 7090 9000 9000 12000 12000 7090 8250 7090 9000 8250 215790
labour
Cost of inter
10800 10800 10800 1800 1500 1600 1400 1800 1700 1500 1400 1800 1800 1200 1300 1500 1500 1300 1800 1600 1600 1500 1400 1500 1400 66300
crop

Total cost 32197 25891 23890 19435 28135 27557 28587 33682 38417 39014 32599 41215 36760 33770 36918 36990 38572 36050 37835 40903 32847 37495 31605 32342 30075 832780

Discounted
factor at 0.897 0.804 0.721 0.647 0.580 0.520 0.467 0.419 0.375 0.337 0.302 0.271 0.243 0.218 0.195 0.175 0.157 0.141 0.126 0.113 0.102 0.091 0.082 0.073 0.066
11.5%

Discounted
total cost at 28876 20825 17234 12574 16326 14341 13343 14099 14423 13136 9844 11162 8929 7357 7213 6482 6062 5081 4783 4637 3340 3419 2585 2372 1978 250422
11.5 %

RETURNS

Returns
0 0 0 23200 23200 34800 34800 34800 46400 46400 58000 58000 58000 58000 69600 69600 69600 69600 69600 69600 69600 69600 58000 58000 58000 1206400
from oilpam

Returns
from 23165 24059 21075 0 0 0 23165 23165 21075 21075 22086 18736 19786 21075 21075 19786 18736 18736 19786 18736 19786 21075 19786 18736 21075 455775
intercrop

Total
23165 24059 21075 23200 23200 34800 57965 57965 67475 67475 80086 76736 77786 79075 90675 89386 88336 88336 89386 88336 89386 90675 77786 76736 79075 1662175
returns

Discounted
total revenue 20776 19352 15203 6308 15087 15222 28408 26022 27434 24605 26298 22678 20594 18751 18722 16565 15203 13635 12361 10967 9282 7849 6137 5427 5021 407909
at 11.5 %

PROFIT

Net returns -9032 -1832 -2815 3765 -4935 7243 29378 24283 29058 28461 47487 35521 41026 45305 53757 52396 49764 52286 51551 47433 56539 53180 46181 44394 49000

Present
value at 11.5 -8248 -1527 -2144 2619 -3135 4202 15564 11749 12839 11484 17499 11954 12609 12716 13779 12265 10638 10208 9191 7723 8407 7222 5727 5028 5068 193438
% D.F.

NPV 193438

BCR 1.63

IRR 41.77%
Sensitivity Analysis 1

Increasing cost of capital

Age of oil 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total

palm (years)

Discount
Factor at 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.022 0.018 0.015 0.013 0.010
20%

Discount of
total cost at 26830 17980 13825 9373 11307 9229 7978 7833 7445 6301 4387 4623 3436 2630 2396 2001 1739 1354 1184 1067 714 679 477 407 315
20% 145510

Discount of
total revenue 19304 16708 12196 4702 10449 9796 16986 14458 14162 11802 11721 9392 7924 6704 6220 5113 4360 3634 3061 2523 1984 1559 1133 931 800 197621
at 20%

NPV 52110

BCR 1.35

Discount
Factor at 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.002 0.002 0.001
30%

Discount of
total cost at 24767 15320 10874 6805 7578 5709 4556 4129 3623 2830 1819 1769 1214 858 721 556 446 321 259 215 133 117 76 60 43 94794
30%

Discount of
total revenue 17819 14236 9593 3414 7003 6060 9700 7621 6891 5301 4859 3594 2799 2186 1872 1421 1118 860 669 509 369 268 180 136 108 108586
at 30%

NPV 13792

BCR 1.14
Sensitivity analysis II

Estimation of the cost of the project due to the different risks involved

Age of oil 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total

palm (years)

Total cost 32197 25891 23890 19435 28135 27557 28587 33682 38417 39014 32599 41215 36760 33770 36918 36990 38572 36050 37835 40903 32847 37495 31605 32342 30075 832780

Increase in
total cost by 35416 28480 26279 21379 30949 30313 31446 37050 42259 42915 35859 45337 40436 37147 40610 40689 42429 39655 41619 44993 36132 41245 34766 35576 33083 916058
10%

D.F. of
increasing
10% total 31763 22908 18958 13832 17958 15775 14677 15509 15865 14450 10829 12279 9822 8092 7934 7130 6668 5589 5261 5101 3674 3761 2843 2610 2176 275464
cost at
11.50%

NPV 132445

BCR 1.48

Total cost 32197 25891 23890 19435 28135 27557 28587 33682 38417 39014 32599 41215 36760 33770 36918 36990 38572 36050 37835 40903 32847 37495 31605 32342 30075 832780

Increase in
total cost by 38636 31069 28668 23322 33762 33068 34304 40418 46100 46817 39119 49458 44112 40524 44302 44388 46286 43260 45402 49084 39416 44994 37926 38810 36090 999336
20%

D.F. of
increasing
20% total 34651 24990 20681 15089 19591 17209 16011 16919 17307 15764 11813 13395 10715 8828 8656 7778 7274 6097 5739 5565 4008 4103 3102 2847 2374 300506
cost at
11.50%

NPV 107402

BCR 1.35

Total cost 32197 25891 23890 19435 28135 27557 28587 33682 38417 39014 32599 41215 36760 33770 36918 36990 38572 36050 37835 40903 32847 37495 31605 32342 30075 832780

Increase in
total cost by 37539 27073 22404 16347 21223 18643 17346 18329 18750 17077 12797 14511 11608 9564 9377 8426 7880 6605 6217 6028 4342 4445 3360 3084 2572 325549
30%
D.F. of
increasing
30% total 41855 33658 31057 25266 36576 35824 37163 43787 49942 50718 42379 53580 47788 43901 47993 48087 50144 46865 49186 53174 42701 48744 41087 42045 39098 1082614
cost at
11.50%

NPV 82360

BCR 1.25

Sensitivity analysis III

Uncertainties resulting due to the difference in the price receivables

Age of oil 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total

palm (years)

Total
23165 24059 21075 23200 23200 34800 57965 57965 67475 67475 80086 76736 77786 79075 90675 89386 88336 88336 89386 88336 89386 90675 77786 76736 79075 1662175
returns

Decrease in
total returns 20849 21653 18968 8775 23400 26325 54779 55949 65768 65768 78377 75362 76307 77468 86243 85082 87062 87062 88007 87062 82157 77468 67532 66587 68693 1552703
by 10%

D.F. of
decrease in
total returns 18698 17417 13683 5677 13578 13700 25567 23420 24691 22144 23668 20411 18535 16876 16850 14909 13682 12271 11125 9870 8354 7064 5523 4884 4519 367118
by 10% at
11.5%

NPV 116696

BCR 1.46

Total
23165 24059 21075 23200 23200 34800 57965 57965 67475 67475 80086 76736 77786 79075 90675 89386 88336 88336 89386 88336 89386 90675 77786 76736 79075 1662175
returns

Decrease in
total returns 18532 19247 16860 7800 20800 23400 48692 49732 58460 58460 69669 66989 67829 68860 76660 75629 77389 77389 78229 77389 73029 68860 60029 59189 61060 1380180
by 20%
D.F. of
decrease in
total returns 16621 15482 12163 5047 12069 12178 22727 20818 21947 19684 21039 18143 16476 15001 14978 13252 12162 10908 9889 8774 7425 6279 4910 4342 4017 326327
by 20% at
11.5%

NPV 75905

BCR 1.30

Total
23165 24059 21075 23200 23200 34800 57965 57965 67475 67475 80086 76736 77786 79075 90675 89386 88336 88336 89386 88336 89386 90675 77786 76736 79075 1662175
returns

Decrease in
total returns 16216 16841 14753 6825 18200 20475 42606 43516 51153 51153 60960 58615 59350 60253 67078 66175 67715 67715 68450 67715 63900 60253 52525 51790 53428 1207658
by 30%

D.F. of
decrease in
total returns 14543 13546 10642 4416 10561 10656 19886 18216 19204 17223 18409 15875 14416 13126 13106 11596 10642 9544 8653 7677 6497 5494 4296 3799 3515 285536
by 30% at
11.5%

NPV 35114

BCR 1.14

Sensitivity analysis IV

Instabilities resulting due to the difference in the selling price

Age of oil 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Total

palm (years)

Total
23165 24059 21075 8775 23400 26325 57095 58265 67875 67875 80586 77236 78286 79575 88350 87061 88936 88936 89986 88936 84136 79575 69511 68461 70800 1598280
returns
Decrease in
selling price
of 10% 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850 5850
(6500-650=
5850)

D.F. of
selling price
at 10%
20776 19352 15203 5677 13578 13700 26649 24390 25482 22854 24335 20918 19016 17335 17262 15255 13977 12535 11375 10083 8555 7257 5685 5022 4658 380928
decrease in
total returns
at 11.5%

NPV 130506

BCR 1.52

Total
returns 23165 24059 21075 7800 20800 23400 53325 54365 62675 62675 74086 70736 71786 73075 80875 79586 81136 81136 82186 81136 76986 73075 63986 62936 65275 1471335

Decrease in
selling price
of 20% 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200 5200
(6500-1300=
5200)

D.F. of
selling price
at 20%
20776 19352 15203 5047 12069 12178 24889 22757 23530 21103 22372 19158 17437 15919 15801 13946 12751 11436 10389 9198 7828 6664 5233 4616 4294 353947
decrease in
total returns
at 11.5%

NPV 103524

BCR 1.41

Total
23165 24059 21075 6825 18200 20475 49555 50465 57475 57475 67586 64236 65286 66575 73400 72111 73336 73336 74386 73336 69836 66575 58461 57411 59750 1344390
returns

Decrease in
selling price
of 30% 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550 4550
(6500-1950=
4550)
D.F. of
selling price
at 30%
20776 19352 15203 4416 10561 10656 23129 21125 21578 19352 20410 17397 15858 14503 14341 12636 11525 10336 9403 8314 7101 6071 4781 4211 3931 326966
decrease in
total returns
at 11.5%

NPV 76543

BCR 1.30
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