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BRILLIANT’S Analysis of Risk and Uncertainty in Investment Decisions 467
(a) What is the NPV if volume increases or (a) `{X dm°ë`y_ ~‹T>Vm h¡ `m KQ>Vm h¡ Vmo NPV Š`m
decreases? hmoJr?
(b) What is the NPV if variable costs or fixed (b) `{X do[aE~b H$m°ñQ> `m {\$ŠñS> H$m°ñQ> ~‹T>Vr h¡ `m
costs increase or decrease? KQ>Vr h¡ Vmo NPV Š`m hmoJr ?
(c) What is the NPV if sales price increases or (c) `{X {dH«$` _yë` ~‹T>Vm h¡ `m KQ>Vm h¡ Vmo NPV Š`m
decreases? hmoJr?
(d) What will be the change in outcomes if the (d) `{X àmoOoŠQ> _| Xoar hmoVr h¡ `m àmoOoŠQ> H$m OrdZH$mb
project is delayed or project’s life is more Anojm go H$_ `m A{YH$ hmo OmVm h¡ Vmo n[aUm_m| _|
or less than anticipated?
Š`m AÝVa AmEJm?
A whole range of questions can be ans- gopÝg{Q>{dQ>r EZm{b{gg H$s ghm`Vm go Bg àH$ma
wered with the help of sensitivity analysis. It Ho$ g^r àíZm| Ho$ CÎma {X`o Om gH$Vo h¢Ÿ& `h CZ do[aE~ëg
examines the sensitivity of the variables H$s gopÝg{Q>{dQ>r H$s Om±M H$aVm h¡ Omo NPV `m IRR H$s
underlying the computation of NPV or IRR. JUZm go Ow‹S>o h¢Ÿ&
Merits JwU
Following are the merits of sensitivity gopÝg{Q>{dQ>r EZm{b{gg Ho$ _w»` JwU {ZåZ-
analysis: {b{IV h¢…
(i) It helps to find out calculated outcomes of (i) `h {H$gr àmoOoŠQ> Ho$ gå~ÝY _| Ho$db AZw_mZ bJmZo
the project rather than vague predictions. Ho$ ~Om` {dídgZr` n[aUm_ kmV H$aZo _| ghm`Vm
H$aVm h¡Ÿ&
(ii) The effect of changes in assumptions can (ii) _mÝ`VmAm| _| n[adV©Z Ho$ à^md H$m {díbofU ^r
also be analyzed. {H$`m Om gH$Vm h¡Ÿ&
(iii) Sensitivity analysis can produce some (iii) gopÝg{Q>{dQ>r EZm{b{gg H$s ghm`Vm go àmoOoŠQ> Ho$
very useful information about projects g§~§Y _| Hw$N> _hËdnyU© gyMZmE± kmV H$s Om gH$Vr h¢
that appear equally desirable on the basis Omo CZHo$ H¡$e-âbmo Ho$ gå^m{dV Am±H$‹S>m| Ho$ AmYma
of the most likely estimates of their cash na Amí`H$ hmoVr h¡Ÿ&
flows.
(iv) It helps in determining the areas of (iv) `h CZ nhbyAm| _| gwYma H$s Amdí`H$Vm H$mo Xem©Vm
improvement in order to improve the h¡ Omo àmoOoŠQ> Ho$ n[aUm_m| _| gwYma Ho$ {bE Amdí`H$
outcomes. h¡Ÿ&
Limitations gr_mE±
Sensitivity analysis technique suffers from gopÝg{Q>{dQ>r EZm{b{gg Q>opŠZH$ H$s gr_mE± {ZåZ-
following limitations: {b{IV h¡…
(i) Though it provides more than one (i) `Ú{n `h â`yMa [aQ>Ýg© Ho$ g§~§Y _| EH$ go A{YH$
estimate of the future return but it does gå^mdZmAm| H$mo àH$Q> H$aVr h¡ {H$ÝVw CZHo$ hmoZo H$s
not disclose the probability of occurrence gå^mdZm H$mo Zht Xem©Vr h¡Ÿ&
of that returns.
