Explain the sensitivity analysis of burley plc, Financial Management

Assignment Help:

Sensitivity analysis

A sensitivity analysis studies the impact of specified variations in key factors on the initially-calculated NPV. The initial point for a sensitivity analysis is the NPV using the most likely value or best estimate for each key variable. Taking the resultant base case NPV as a reference point the aim is to identify those factors which have the greatest impact on the profitability of the project if their realised values deviate from expectations. This intellect signals to managers where they should arrange to focus resources in order to secure favourable outcomes. Problems with sensitivity analysis comprise the following

- It deals with changes in isolation as well as tends to ignore interactions between variables. For instance advertising may alter the volume of output as well as influencing price and price and volume are usually related.

- It assume that specified changes persist all through the project lifetime - example a postulated l0% change in volume may be projected for each year of operation. Actually variations in key factors tend to fluctuate randomly.

- It may perhaps reveal as critical factors over which managers have no control thus offering no guide to action. However it may still help to clarify the risks to which the project is exposed.

- It doesn't provide a decision rule example it doesn't indicate the maximum acceptable levels of sensitivity.

- It provides no indication of the likelihood of the variations under consideration. Difference in a factor which is potentially devastating but has a minimal chance of occurring provide little cause for concern.

 


Related Discussions:- Explain the sensitivity analysis of burley plc

305, I have an assignment due today and needs some help

I have an assignment due today and needs some help

Portfolio diversification, Portfolio Diversification The objectives of ...

Portfolio Diversification The objectives of diversification are to: Reduce the variability of the fund's total return; Reduce the exposure to any single component of t

Types of mutual funds, Types of Mutual Funds The objectives of a Mutual...

Types of Mutual Funds The objectives of a Mutual Fund are as follows: To provide an opportunity for lower income groups to acquire property without much difficulty in the

Briefly define liquidity risk faced by a bank, Question: You have just ...

Question: You have just been appointed the secretary of the ALM Committee (ALCO) of ABN Bank. The ALCO members have some queries relating to the liquidity risk faced by the ban

Generation of capital projects in the public sector, Question: (a) In t...

Question: (a) In the Strategic Planning Model, describe the various stages involved in the generation of capital projects in the public sector. (b) Outline the life cycle-co

Basic objectives of cash management, Q. Basic objectives of cash management...

Q. Basic objectives of cash management? The basic objectives of cash management are two-fold: 1) To meet the cash disbursement needs (payment schedule); and 2) To minimize f

FINANCIAL MANAGEMENT IS INTERDISCIPLINARY, RELATIONSHIP OF FINANCIAL MANAGE...

RELATIONSHIP OF FINANCIAL MANAGEMENT WITH OTHER BUSINESS FUNCTIONS

Explain the meaning of - purchase consideration, Explain the meaning of - P...

Explain the meaning of - Purchase consideration The  type  of  offer  made  to  target  company's  shareholders  would have  a  big  impact on acceptance. Apparently the price

Accrual bond, It is a bond that does not give periodic interest payments. I...

It is a bond that does not give periodic interest payments. In spite of that, interest is added to the principal balance of the bond and is either paid at maturity or, at some poin

Case study, what are the assumptions of MM(Modigliani Miller) approach

what are the assumptions of MM(Modigliani Miller) approach

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd