SENSITIVITY ANALYSIS
predisposition analysis is the process of varying the assumptions underlying a conclusion to determine the decisions esthesia to those assumptions. It enables managers to assess how responsive NPV is to changes in come across variables that ar used to calculate it (Drury 1996). Some of the factors that influence the NPV of multinationals are taxes, exchange rates, estimating the terminal value of a spew using different methodologies, political risk and the real operating options (Buckley 2000). NPV is cypher using the estimated value of sales, unit to be sold and product rates. Taking each variable one at a time, the NPV can be computed separately to know what the NPV entrust be if that variable changes. In order to perform a sensitivity analysis, the firm will need to first pick a base case situation as benchmark for comparison. afterwards picking the base situation, the firm will start ever-changing one of its key variables and determine its advert on the learns NPV.
Uses
·Sensitivity analysis gives some idea of complete risk as variables are analysed on their own. Stand-alone risk is the risk the project has by being considered as a separate project. Since a project by a multinational has knock on effects on other projects in the group, there is the need to analyse the NPV of the project without taking the effects on other subsidiaries.
The Chilean or Indian project has to be evaluated as a stand-alone project to determine its real NPV.
·It also identifies austere variables that will impact negatively on the business. This gives managers immediate answers about attainable future events and their influences on NPV. By doing sensitivity analysis, variables that seen as dangerous are identified and managed so as to reduce its impact on the business (Horngren et al 2002)
·Sensitivity analysis gives...
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