Question

Explain how a hospital's sensitivity analysis could be used to project or forecast a budget that is highly likely to change - the way that changing certain events may affect budgeting?

Answer 1

Sensitivity analysis can be used in different ways The hospital can calculate the amount of time needed to cover the investment expenses. The hospital can also estimate the cash flows over time to estimate whether the project will make a profit. The hospital can calculate the discount rate at which the project will break even. All these methods of capital budgeting involve assumptions which need to be changed to adjust to the need of the hospital These methods the investor the determine beforehand if the project is financially feasible of some of the assumptions need to be changed to make it feasible.

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