Unformatted text preview: e of “what-if”
type of what
uncertainty analysis in which variables or
assumptions are changed from a base case in
order to determine their impact on a project’s
measured results (such as NPV or IRR).
• Allows us to change from “single-point” (i.e.,
revenue, installation cost, salvage, etc.) estimates
to a “what if” analysis
• Utilize a “base-case” to compare the impact of
individual variable changes
• E.g., Change forecasted sales units to see
impact on the project’s NPV
81 Certified Financial Controller CFC PostPost-Completion Audit
A formal comparison of the actual costs and
benefits of a project with original estimates.
• Identify any project weaknesses
• Develop a possible set of corrective actions
• Provide appropriate feedback Result: Making better future decisions!
82 Certified Financial Controller CFC 41 Multiple IRR Problem
Let us assume the following cash flow
us assume the following cash flow
pattern for a project for Years 0 to 4:
–$100 +$100 +$900 –$1,000
How many potential IRRs could this
Two!! There are as many potential
IRRs as there are sign changes.
83 Certified Financial Controller CFC NPV Profile – Multiple IRRs
Net Present Value
0 –100 84 Multiple IRRs at
k = 12.95% and 191.15%
191.15% 0 40 80
Discount Rate (%)
Certified Financial Controller CFC 42 200...
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- Fall '12
- Net Present Value, Internal rate of return, Financial Controller CFC, Certified Financial Controller