Financial Analysis

QUESTION NO.1 Write a short note on the SENSITIVITY ANALYSIS:-(Also known as What if compendium)? ÃŒMeaning : esthesia Analysis enables managers to assess how responsive the NPV is to changes in the variables which are used to head teacher it. ÃŒExample : aesthesia Analysis answers questions like, (i) What happens to the Net Present meet on if inflows are, say Rs. 50,000 than the anticipate Rs. 80,000? (ii) What will happen to NPV if the frugal livelihood of the project is only 3 years instead than expected 5 years? ÃŒImportance : It directs the management to counterbalance maximal attention towards the factor where minimum percentage of wayward change causes upper limit adverse operation. ÃŒComputation : Sensitivity of a variable is metric by using chase relation : Sensitivity (%) = transmute/Base x one hundred ÃŒProcedure: (1) Set up birth between the fundamental cardinal factors (quantity sold, unit Sales Price, biography of project etc.) & N.P.V. (Some some other criterion of merit). (2) Estimate the range of strain and the most in all probability place 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 barely work.. If N.P.V. and I.R.R. is extremely sensitive to changes in some variable, it is desired to gather further information about the variable. ÃŒDemerits: (1) Fail to give up leads - if esthesia 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 dishonor of variation in one factor at a time, holding other factors constant may no t be very meaningful when underlying factor! s are likely to be inter-related.What sense does it make to...If you want to get a bounteous essay, order it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay