How does one analyze the sensitivity of NPVs

Solutions

Expert Solution

The sensitivity of NPV actually helps in understanding that how the NPV is going to be in different scenario. One way of analyzing the sensitivity of NPV is to change the interest rate being used to discount the projects. If the at higher rates the project is still producing positive NPV then that project is desirable and by calculating the NPV at different discount rates one can understand how the NPV is being affected. The other way is to change the cash flow estimation. When you are estimating the cash, flow associated with a project then you should not be either too optimistic or too pessimistic, hence you can change the cash flows and then see how the NPV is being affected. The other way is to attach probability percentage to the cash flows and evaluate the NPV at different probability of cash flows. If at stricter criteria the project is still producing positive NPV then that project is considered a good project.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

In 200 words or more, How does one analyze cash flow from operations?

How does the voltage sensitivity of K+ conductance contribute to the action potential?

Analyze the relationship between financial capital and social capital. How does one affect the other? Is...

Analyze the relationship between financial capital and social capital. How does one affect the other? Is there ever a situation in which an individual could have a lot of one, but not the other? Or are the two inextricably linked? Provide examples to support your claims. Explain how different types of capital can affect technology access and adoption. Be sure to use evidence/examples to support your claims.

How to calculate 95% CI with sensitivity and specificity That is sensitivity, specificity, prevalence has been...

How to calculate 95% CI with sensitivity and specificity That is sensitivity, specificity, prevalence has been given and 95%CI needs to be calculated, but how???

Explain how the interest sensitivity of investment and interest sensitivity of money demand impacts the efficacy...

Explain how the interest sensitivity of investment and interest sensitivity of money demand impacts the efficacy of monetary and fiscal policy.

Enlighten on how can one conduct sensitivity analysis by using CVP analysis, what is the relevance...

Enlighten on how can one conduct sensitivity analysis by using CVP analysis, what is the relevance in managerial decision making?

How does lowering the screening cutoff point effect sensitivity and specificity, Positive predictive value, and Negative...

How does lowering the screening cutoff point effect sensitivity and specificity, Positive predictive value, and Negative Predictive Value of the test assuming prevalence stays the same? Why?

examples and how does that relate to your personal life .analyze how technology is likely to...

examples and how does that relate to your personal life .analyze how technology is likely to affect the industry structure and competition?

Analyze and evaluate sensitivity analysis for different financial models, including the Yield Curve and its usefulness...

Analyze and evaluate sensitivity analysis for different financial models, including the Yield Curve and its usefulness in predicting recessions. Did the Yield Curve from 2004 through 2007 predict the Great Recession of 2008 – 2010? Based on the current Yield Curve, detail your prediction for the U.S. economy for the next two years.

1a. Which of the following does the sensitivity of the bond price to the changes in...

1a. Which of the following does the sensitivity of the bond price to the changes in interest rates depend on? Maturity of the bond Coupon rate Both maturity of the bond and the coupon rate None `1b. Which of the following is correct when the Coupon Rate of a bond is equal to its Yield to Maturity? The price of this bond is equal to its face value. The price of this bond is higher than its face value. The...

Subjects