Corporation Financial Management
Initial Investment 275,000 Pounds
Life 7 years
Sales Per Annum 25,000
Contribution per unit 2.50 Pounds
Required Rate of Return 10%
Break-even units Q=Initial Investment/Contributing margin per unit
Sensitivity analysis is the investigation of how change in one variable affects change in another. For instance, sales volume could be affected by the number of sales persons. Managers use this kind of analysis to establish which variable have greatest impact on the outcome of the venture. In risk assessment, sensitivity analysis is used to minimize risk. This is done through making use of variables whose combinations would produce minimal risk and optimal gains. Therefore, instead of relying on inappropriate measures, sensitivity analysis could be opted instead of other mechanical and inefficient reactionary methods.