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Question about Sensitivity analysis

Conduct a sensitivity analysis on the following "what if" scenarios:

a. What happens if the country you have chosen has provided incentives to invest? Now that your company has started to become profitable, the country is taking the incentives back. How do you determine the residual value at the end of the project life?

b. How is the value of an organization determined from the following perspectives:

i. Expiration of project life
ii. Friendly or unfriendly buyout
iii. Economic decisions to change locations
iv. Nationalization or confiscation of organization

Solution Preview

STEP 1
a. What happens if the country you have chosen has provided
incentives to invest? Now that your company has started
to become profitable, the country is taking the
incentives back. How do you determine the residual
value at the end of the project life?

If the country I have selected has chosen to provide incentives to invest withdraws the incentives. First, the types of incentives that a country gives are tax holidays, lower tax rates and low rates of interest for loans. Second, the net effect of these incentives is to make the location attractive for investment. Third, these incentives reduce the cost to your company and this has the effect of increasing the profits of your company. Fourth, what the question is saying is that the gestation period is now over and your company has started earning profits, however, at the same time the government has started ...

Solution Summary

Sensitivity analysis is discussed in great detail in this solution.

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