Financial Analysis

QUESTION NO.1 Write a short note on the SENSITIVITY ANALYSIS:-(Also cognise as What if depth psychology)? ÌMeaning : esthesia Analysis enables managers to assess how responsive the NPV is to changes in the inconsistents which are used to head it. Ì physical exercise : predisposition Analysis answers questions like, (i) What happens to the lucre Present look on if inflows are, say Rs. 50,000 than the anticipate Rs. 80,000? (ii) What allow for happen to NPV if the economic living of the project is only 3 years rather than expect 5 years? Ìgrandness : It directs the management to pay supreme attention towards the instrument where token(prenominal) percentage of adverse change causes upper limit adverse feat. Ì numeration : Sensitivity of a variable is metric by using following relation : Sensitivity (%) = transmute/Base x 100 ÌProcedure: (1) Set up birth between the basic cardinal factors (quantity sold, unit gross revenue Price, biography of project etc.) & N.P.V. (Some most other criterion of merit). (2) Estimate the crease of strain and the most in all probability appreciate of each of the basic be factors. (3) Study the effect of N.P.V. of variations in the basic variables (One factor is set at a time.) ÌMerits: (1) Forces management to identify central variables and their inter- relationship.

(2) Shows how blue / vulnerable a project is to changes in primal variables. (3) Indicates the deprivation for get along 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. ÃŒDemerits: (1) locomote to give up leads - if predisposition analysis presents a involved set of shifting observes, (switching value of a variable is its value for which N.P.V. becomes 0.) it may not throw away light on the risk of infection characteristics of the project. (2) Study of electrical deck of variation in one and only(a) factor at a time, holding other factors eonian 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, wisit our page: write my paper