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    Advantages of using sensitivity and scenario analysis

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    Explain the advantages of using sensitivity and scenario analysis when evaluating capital projects.

    © BrainMass Inc. brainmass.com October 10, 2019, 3:07 am ad1c9bdddf
    https://brainmass.com/business/working-capital-management/advantages-using-sensitivity-scenario-analysis-407809

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    Sensitivity analysis is investigation of what happens to NPV when only one variable is changed. The advantage of this method is that it is useful in pinpointing the areas where forecasting risk is especially severe. Also, if the company's NPV estimate turns out to be very sensitive to relatively small changes in the projected value of some component of ...

    Solution Summary

    The advantages of using sensitivity and scenario analysis when evaluating capital projects are explained.

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