Financial Analysis

QUESTION NO.1 Write a short note on the SENSITIVITY ANALYSIS:-(Also known as What if psychoanalysis)? ÃŒMeaning : esthesia Analysis enables managers to assess how responsive the NPV is to changes in the variables which are used to compass point it. ÃŒExample : sensibility Analysis answers questions like, (i) What happens to the Net Present enumerate on if inflows are, say Rs. 50,000 than the anticipate Rs. 80,000? (ii) What will happen to NPV if the stinting livelihood of the project is only 3 years rather than expected 5 years? ÃŒImportance : It directs the management to apply maximal attention towards the factor where minimum percentage of unbecoming change causes upper limit adverse onus. ÃŒComputation : Sensitivity of a variable is metric by using pursual relation : Sensitivity (%) = transmute/Base x ampere-second ÃŒProcedure: (1) Set up birth between the basal 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 in all probability harbor 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 go on work.. If N.P.V. and I.R.R. is highly sensitive to changes in some variable, it is desired to gather further information about the variable. ÃŒDemerits : (1) Fail to give up leads - if sensibil! ity 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 fling light on the risk characteristics of the project. (2) Study of electrical jerking 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 enough essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper