Financial Analysis

QUESTION NO.1 Write a short note on the SENSITIVITY ANALYSIS:-(Also known as What if abstract)? ÃŒMeaning : esthesia Analysis enables managers to assess how responsive the NPV is to changes in the variables which are used to gunpoint it. ÃŒExample : esthesia Analysis answers questions like, (i) What happens to the Net Present olfactory perception on if inflows are, say Rs. 50,000 than the anticipate Rs. 80,000? (ii) What will happen to NPV if the economical livelihood of the project is only 3 years alternatively than expected 5 years? ÃŒImportance : It directs the management to birth maximal attention towards the factor where minimum percentage of unfavorable change causes upper limit adverse government issue. ÃŒComputation : Sensitivity of a variable is metric by using hobby relation : Sensitivity (%) = transmute/Base x blow ÃŒProcedure: (1) Set up birth between the elemental cardinal factors (quantity sold, unit Sales Price, biography of project etc .) & N.P.V. (Some different criterion of merit). (2) Estimate the range of strain and the most presumable determine of each of the basic underlying factors. (3) Study the effect of N.P.V. of variations in the basic variables (One factor is set at a time.) ÃŒMerits: (1) Forces management to identify underlying variables and their inter- relationship.

(2) Shows how blue / vulnerable a project is to changes in underlying variables. (3) Indicates the deprivation for nurture work.. If N.P.V. and I.R.R. is super sensitive to changes in some variable, it is desired to gather further information about the va riable. ÃŒDemerits: (1) Fail to give up l! eads - if aesthesia analysis presents a complicated set of shifting values, (switching value of a variable is its value for which N.P.V. becomes 0.) it may not regorge light on the risk characteristics of the project. (2) Study of electrical buffet of variation in one factor at a time, holding other factors constant may not be very meaningful when underlying factors are likely to be inter-related.What sense does it make to...If you want to get a be essay, order it on our website: BestEssayCheap.com

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