ACC 312 Study Guide - Midterm Guide: Sensitivity Analysis, Net Present Value
Document Summary
The discounted payback appraisal method requires a discount rate to be chosen and then the payback is the number of years required to repay the original investment. A number of further factors may have an additional impact on the investment criteria calculations: The effect of inflation on the cost of capital. Whether additional working capital is required for the project. Risk and uncertainty and decision-making sensitivity analysis. Actual outcomes usually differ considerably from expected outcomes. In terms of capital investment, the greater the timescale of the project the more time there is for more things to go wrong; the larger the investment, the greater may be the impact. As a final step in evaluation of the investment in a project it is prudent to carry out some sort of sensitivity analysis. Sensitivity analysis may be used to assess the risk associated with a capital investment project. A project having a positive npv may on the face of it seem viable.
