Sensitivity Analysis -...

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Financial Modeling: Sensitivity Analysis By Adam Fish Ads by Google Baixar Cplex www.aimms.com/Download Download free license to use CPLEX as LP, MIP solver in AIMMS. Try now Risk Management from ADM www.admis.com Learn About Risk Management & More From a Free Whitepaper by ADMIS. Optical Table Accessories www.KineticSystems.com Get Laser Port, Tabletop Enclosures & More. Visit For Quality Products! One of the great things that a good financial model can do is test different business scenarios. A good model should also test how sensitive the results can be to changes in the assumptions. A great way to tackle both of these goals is to build a sensitivity table. To demonstrate how a sensitivity table works, let's build a very simple model that will calculate the return on a hypothetical investment. We will assume a certain investment amount, forecast annual cash flows and calculate an exit value. From these calculations we can calculate an internal rate of return (IRR). Our sensitivity analysis will look at a couple inputs in the model and alter their values to see how it impacts the IRR. Sensitivity Training First, let's set up an assumptions table. We will come up with assumptions for the following inputs:
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Growth Operating Expenses Margin Net Income Exit Multiple Initial Investment Year 1 Revenue The growth assumption will represent how quickly revenues for the investment will grow. Operating expenses will represent our annual overhead costs. Our margin assumption will help us calculate our cost of goods sold. The "Net Income Exit Multiple" will help us determine the value of our investment when we're ready to exit. Our initial investment assumption represents how much cash we put up to make the investment. And year-one revenue is our starting point for revenue growth. Let's use the following values as the corresponding assumptions for these inputs: 15% $1,000,000.00 35% 5 x $2,500,000.00
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$3,500,000.00 This model will obviously be very simple so that we can easily illustrate how to perform a sensitivity analysis. Forecasting Cash Flow
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Sensitivity Analysis -...

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