It's your first day as the CFO for a very large firm that considers hundreds of potential projects every year. Your new boss (the CEO) wants to know how you plan evaluate those projects. Will you use sensitivity analysis? Scenario analysis? Some other method? Will you utilize nonfinancial people to help with the analysis? If so, whom and why? Craft a memo to the CEO (Dr. Stephanie Yates) to answer these questions. Provide as much detail as possible to assure the boss that you know what you're doing!
***Please be sure to explaing why sensitivity would be best, scenario would be best, etc. try to answer all the parts of the question. There is no min/max word count, I just need help explaining these concepts/terms.
Answer ) The selection and use of techniques for evaluation depend on factors, market situations and available alternatives of investments.
sensitivity analysis a very good technique for forecasting with special attention to critical factors , by expressing use of some additional analysis., but the technique d does not directly measure risk. The technique can only measure the effect of change of one factor on net out come, if other remain constant.
Scenario analysis is a special type of technique of evaluating all possible actions that could take place in the future by considering various feasible results or outcomes. In the process of financial evaluation it test the estimate of changes in net value of cash flow, mainly in case of Unfavorable or favourable situations.
The production team and mangers will be asked , as part of non-finance background , during evaluation process
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