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468 Corporate Finance BRILLIANT’S

(ii) The study of the effect of variations in one (ii) {H$gr EH$ d¡[aE~b _| n[adV©Z Ho$ à^mdm| H$m AÜ``Z,
variable by keeping other variables AÝ` g^r d¡[aE~ëg H$mo pñWa _mZH$a H$aZm A[YH$
constant may not be very effective as the à^mdembr Zht bJVm Š`m|{H$ d¡[aE~ëg BpÝS>noÝS>oÝQ>
variables may be independent.
^r hmo gH$Vo h¢Ÿ&
(iii) The results of sensitivity analysis are (iii) gopÝg{Q>{dQ>r EZm{b{gg Ho$ n[aUm_ {S>grOZ _oH$a
subjective to the risk preferences of the Ho$ [añH$ {à\$aoÝg na {Z^©a H$aVm h¡Ÿ& EH$ {S>grOZ
decision makers. One decision maker may
reject a proposal while the other may _oH$a {Og àmoOoŠQ> H$mo [aOoŠQ> H$a gH$Vm h¡ Xygam
accept the same. Cgr H$mo ñdrH$ma ^r H$a gH$Vm h¡Ÿ&
(iv) It does not focus on the inter relationship (iv) `h d¡[aE~ëg Ho$ ~rM H$s BÝQ>a[aboeZ{en na \$moH$g
between variables. Zht H$aVmŸ&

(v) Sensitivity analysis is neither a risk (v) gopÝg{Q>{dQ>r EZm{b{gg Z Vmo [añH$ H$mo _mnZo H$s
measuring technique nor a risk reducing Q>opŠZH$ h¡ Am¡a Z [añH$ H$_ H$aZo H$sŸ& `h H$moB©
technique. It does not provide any clear ñnîQ> {S>grOZ ê$b àXmZ Zht H$aVmŸ&
cut decision rule.
Despite above limitations, sensitivity CnamoŠV gr_mAm| Ho$ ~mX ^r gopÝg{Q>{dQ>r EZm{b{gg
analysis helps in identifying the different CZ {d{^ÝZ d¡[aE~ëg H$mo OmZZo _| ghm`Vm H$aVm h¡ Omo
variables which have effect on the NPV of the àmoOoŠQ> H$s NPV na à^md S>mbVo h¢Ÿ& `h CZ nhbyAm|
project. It shows the areas where additional H$mo Xem©Vm h¡ {OZH$m A{V[aº$ {díbofU {H$gr ànmoOb H$mo
analysis may be undertaken before a proposal
{gboŠQ> H$aZo Ho$ nhbo Amdí`H$ hmoVm h¡Ÿ&
is finally selected.
5. Financial Break-Even Analysis 5. \$m`ZopÝe`b ~«oH$-B©dZ EZm{b{gg
Break-Even Point refers to the point where ~«oH$-B©dZ nm°BÝQ>, Cg nm°BÝQ> H$mo Xem©Vm h¡ Ohm±
total cost is equal to total revenue. Though the Q>moQ>b H$m°ñQ> Ed§ Q>moQ>b aodoÝ`y ~am~a hmo OmVo h¢Ÿ& `Ú{n
concept is same, yet accounting break-even is AH$mCpÝQ>¨J ~«oH$-B©dZ Ed§ \$m`ZopÝe`b ~«oH$-B©dZ Ho$
different from financial break-even. H$m°ÝgoßQ> g_mZ h¢ na§Vw CZ_| Hw$N> {^ÝZVmE± ^r h¢Ÿ&
Financial break-even under capital H¡${nQ>b ~OqQ>J go g§~§{YV ànmoOb _| \$m`ZopÝe`b
budgeting proposal may be analyzed as to how ~«oH$-B©dZ nm°BÝQ> H$m {díbofU `h OmZZo Ho$ {bE {H$`m Om
much revenue will be needed for a project to
gH$Vm h¡ {H$ {H$gr àmoOoŠQ> H$mo ~«oH$-B©dZ na bmZo Ho$ {bE
break-even in financial terms that is to make
the net present value zero. {H$VZm aodoÝ`y Amdí`H$ h¡ Vm{H$ ZoQ> àoOoÝQ> d¡ë`y Oramo hmo OmEŸ&
Financial break-even is computed by first \$m`ZopÝe`b ~«oH$-B©dZ H$s JUZm g~go nhbo `h
estimating the annual cash flows needed to OmZZo Ho$ {bE H$s OmVr h¡ {H$ {H$VZo EÝ`wAb H¡$e-âbmo
make the net present value zero, then na ZoQ> àOoÝQ> d¡ë`y Oramo hmo Ed§ BgHo$ níMmV² `h OmZZo
ascertaining the revenues needed to generate Ho$ {bE {H$ {H$gr {ZpíMV EÝ`wAb H¡$e-âbmo Ho$ {bE
the annual cashflow and finally estimating the
number of units that have to be sold to generate {H$VZm aodoÝ`y Amdí`H$ hmoJm Ed§ {H$gr {ZYm©[aV aodoÝ`y H$s
àm{á Ho$ {bE {H$VZr `y{ZQ²>g na {dH«$` H$aZm hmoJmŸ&
the revenue.