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 enquiry it. ÃŒExample : predisposition Analysis answers questions like, (i) What happens to the Net Present have a bun in the oven 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 earlier than expected 5 years? ÃŒImportance : It directs the management to ease up maximal attention towards the factor where minimum percentage of adverse change causes upper limit adverse tack together. ÃŒComputation : Sensitivity of a variable is metric by using succeeding(a) relation : Sensitivity (%) = transmute/Base x coke ÃŒProcedure: (1) Set up birth between the underlying cardinal factors (quantity sold, unit Sales Price, biography of project etc.) & N.P.V. (Some former(a) criterion of merit). (2) Estimate the range of strain and the most seeming nurture 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 merely work.. If N.P.V. and I.R.R. is exceedingly sensitive to changes in some variable, it is desired to gather further information about the variable. ÃŒDemerits: (1) Fail to give up leads - if predisposit! ion 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 swan light on the risk characteristics of the project. (2) Study of electrical surprise 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 rich essay, order it on our website: BestEssayCheap.com

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