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Corporation Financial Management

Data

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

Thus;

Break-even units Q=Initial Investment/Contributing margin per unit

=275,000/2.5

=110,000 units

Sensitivity Analysis

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.

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