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

Issuing procedure of treasury bills, Issuing Procedure of treasury bills ...

Issuing Procedure of treasury bills As discussed above, the RBI on behalf of central government, announces the auctioning of T-bills by tender notification through the press. T

Financial ratios, How can we interpret financial ratios??

How can we interpret financial ratios??

Bank credit, Definition of 'Bank Credit': The amount of credit availab...

Definition of 'Bank Credit': The amount of credit available to a business or individual from the banking system. It is the aggregate of the amount of funds financial instituti

International mortgage backed securities, International mortgage-back...

International mortgage-backed securities are the mortgage-backed securities that are issued in a country by a non-domestic entity. With limited size of the Indian

Market efficiency, Market Efficiency Though there are various markets p...

Market Efficiency Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency pres

Claim for refund, Claim for Refund - A refund isn't automatically mailed if...

Claim for Refund - A refund isn't automatically mailed if one is due. A taxpayer whether individual orbusiness, should file a request on a form. It should also be filed within the

Cost of retained earnings and external equity, Expalin the basic concept of...

Expalin the basic concept of financial management and Cost of Retained Earnings and External Equity??? Also explain the hoe can ew calculate the external equity? Help me

State a process for benchmarking, State a process for benchmarking 1.  ...

State a process for benchmarking 1.  Gain senior management commitment to establish benchmarking as a process within the organisation and educate stakeholders and staff about t

Futures contract, Futures Contract It is an obligation to purchase or s...

Futures Contract It is an obligation to purchase or sell an asset at an agreed-upon price on an exact future date. The buyer commits himself or herself to buy the asset, and th

#fintitle..515, Hi can someone help me with my assignment also understand i...

Hi can someone help me with my assignment also understand it in order for me to do the voice thread and answer all questions that might confront me.

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