But because sensitivity analysis focuses only on one

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Unformatted text preview: ot; analysis). Sensitivity analysis illustrates the effects of changes in assumptions. But because sensitivity analysis focuses only on one change at a time or different sets of variations at a time, it is not very realistic. We know that not one, but many factors can change throughout the life of the project. In the case of the Williams project, there are a number of assumptions built into the analysis that are based on uncertainty, including the sales prices of the building and equipment in five years and the entrance of competitors no sooner than five years. And you can use your imagination and envision any new product and the attendant uncertainties regarding many factors including the economy, the company's competitors, and the price and supply of raw material and labor. Capital budgeting & risk, a reading prepared by Pamela Peterson Drake 6 Sensitivity analysis becomes unmanageable if we start changing two factors at the same time (change more than two and it's even worse). A manag...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.

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