SENSITIVITY ANALYSIS INDICATES WHICH PROJECT

VARIABLE IS KEY/CRITICAL VARIABLE IE WHERE

SMALLEST RELATIVE CHANGE CAN MAKE NPV ZERO.
THIS SHOWS WHERE MANAGEMENT SHOULD FOCUS
THEIR ATTENTION TO MAKE THE PROJECT
SUCCESSFUL OR WHERE UNDERLYING ASSUMPTIONS
CAN BE CHECK FOR ROBUSTNESS.
SENSITIVITY ANALYSIS CAN BE CALCULATED AS THE
RATIO OF NPV TO PV OF PROJECT VARIABLE. THIS
GIVES DIRECTLY THE CHANGE IN VARIABLE NEEDED
TO MAKE THE NPV ZERO.

CAPITAL RATIONING LTD FUNDS TO INVEST

REASONS
EXTERNAL(HARD)LOW CREDIT RATING,CAPITAL
MARKETS MAY BE DEPRESSED,HIGH GOVT
BORROWING,
INTERNAL(SOFT)RELUCTANCE TO RAISE
FINANCEFINANCE COST> CAPITAL INVESTMENT
FUND,AVOID DILLUTION OF EPS BY ISSUING NEW
EQUITY,AVOID PAYING FIXED INTEREST B/C IT
BELIEVES ECONOMIC CONDITION OF COUNTRY IS
POOR& MAY PUT ITS PROFITABILITY UNDER PRESSURE.