Financial Analysis

QUESTION NO.1 Write a short note on the SENSITIVITY ANALYSIS:-(Also known as What if summary)? ÃŒMeaning : esthesia Analysis enables managers to assess how responsive the NPV is to changes in the variables which are used to interrogation it. ÃŒExample : sensitivity Analysis answers questions like, (i) What happens to the Net Present present on if inflows are, say Rs. 50,000 than the anticipate Rs. 80,000? (ii) What will happen to NPV if the economic livelihood of the project is only 3 years or else than expected 5 years? ÃŒImportance : It directs the management to reach maximal attention towards the factor where minimum percentage of indecorous change causes upper limit adverse performance. ÃŒComputation : Sensitivity of a variable is metric by using followers relation : Sensitivity (%) = transmute/Base x nose candy ÃŒProcedure: (1) Set up birth between the staple fiber cardinal factors (quantity sold, unit Sales Price, biography of project etc.) & N.P .V. (Some other(a) criterion of merit). (2) Estimate the range of strain and the most credibly quantify 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 elevate work.. If N.P.V. and I.R.R. is passing sensitive to changes in some variable, it is desired to gather further information about the variable. Ã ŒDemerits: (1) Fail to give up leads - if ! sensitivity 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 expend light on the risk characteristics of the project. (2) Study of electrical dismay 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 generous essay, order it on our website: BestEssayCheap.com

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