The variables used to develop the table, including sales price, variable costs, unit sales, and the unit growth rate, are all most likely, or base-case, values, and the resulting $25,517 NPV shown in Part 5 is called the base-case NPV. Now we ask a series of "what if" questions: "What if unit sales falls 30 percent below the most likely level?" In our sensitivity analysis we hold the other variables at their base case levels and then examine the situation when the key variables change. Each new calculated NPV is plotted on the graph in Part 6 to show how sensitive NPV is to changes in each variable. The table below outlines the NPV figures that we used to construct the graph. The slopes of the lines in the graph show how sensitive NPV is to changes in each of the inputs: the steeper the slope, the more sensitive the NPV is to a change in the variable. From the figure and the table, we see the project's NPV is very sensitive to changes in the sales price, variable cost, and growth rate.

Scenario Analysis

Although sensitivity analysis is probably the most widely used risk analysis technique, it does have limitations. In addition, it would be useful to vary more than one variable at a time so we could see the combined effects of changes in the variables. We saw from the sensitivity analysis that the key variables are sales price, variable costs, unit sales, and the unit growth rate. Therefore, in our sensitivity analysis we hold the other variables at their base case levels and then examine the situation when the key variables change. We assume that the company regards the worst case as one where each of the three variables is 30% worse than the base level, and the best case has each variable 30% better than base. We also assume that there is a 25% chance of the best and worst cases, and a 50% chance of base case levels. The best-case, base-case, and worst-case values are shown in Part 7, along with the plot of the data. If...

...Health economics
What is sensitivityanalysis?
Matthew Taylor PhD MSc Senior Consultant, York Health Economics Consortium, University of York
G While economic models are a useful tool to aid decision-making in healthcare, there remain several types of uncertainty associated with this method of analysis. G One-way sensitivityanalysis allows a reviewer to assess the impact that changes in a certain parameter will have...

...Sensitivityanalysis, what-if analysis, and goal seeking analysis are used for same purpose to analyze complex relationships among millions of data items
to discover business patterns, trends.
All of them are part of Decision support systems (DSS) analysis techniques.
It helps managers to explore possible alternatives.
What-If Analysis:
In what-if analysis, an end user makes...

...Sensitivityanalysis is a technique that indicates exactly how much a project's profitability (NPV or IRR) will change in response to a given change in a single input variable, other things held constant. Sensitivityanalysis begins with a base case developed using expected values (in the statistical sense) for all uncertain variables. Then, each uncertain variable is usually changed by a fixed percentage amount above and below its...

...SENSITIVITYANALYSIS
The solution obtained by simplex or graphical method of LP is based on deterministic assumptions i.e. we assume complete certainty in the data and the relationships of a problem namely prices are fixed, resources known, time needed to produce a unit exactly etc. However in the real world, conditions are seldom static i.e. they are dynamic. How can such discrepancy be handled? For example if a firm realizes that profit per unit is not Rs...

...
SensitivityAnalysis
HCS/405
September 29, 2014
SensitivityAnalysis
Patton Fuller Community Hospital has been operating since 1975. Besides operating with the goal of keeping patient care their top priority there are other elements that demand the facility’s operations attention. At Patton Fuller Community Hospital there are elements that effect staffing, trend analysis and how that collected data is used forth...

...
SCENARIOANALYSIS
LadyAnn Graham-Gilreath
20107089, PCN-505, Grand Canyon University
February 9, 2015
INTRODUCTION
In many cases an agency or private practice, the professional counselor will need to constantly review the cases in which they provide services for. This can be tricky and at all costs will need to monitor the Code of Ethics of any professional organization the professional counselor works for or are a...

2097 Words |
10 Pages

Share this Document

Let your classmates know about this document and more at StudyMode.com

## Share this Document

Let your classmates know about this document and more at StudyMode.com