Chapter 09

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CHAPTER 9 Risk Analysis, Real Options, and Capital Budgeting FIN 6301: Financial Management Instructor: Dr. Hiro Nishi The University of Texas at Dallas Naveen Jindal School of Management 1 • Learn how a sensitivity analysis (a.k.a. "what-if" analysis) can be conducted. • Be able to calculate the: a. Accounting break-even point b. Financial break-even point LEARNING OBJECTIVES Some of the discussions in Ch. 9 heavily involves Microsoft Excel.
2 SENSITIVITY ANALYSIS 3 Sensitivity Analysis (a.k.a. "what-if" analysis) • You "freeze" all variables, except for one. You can analyze how a change in a certain variable affects the project's OCF and NPV : 1) Number of units sold 2) Price per unit 3) Variable cost per unit SENSITIVITY ANALYSIS
4 Revisit the tax-shield approach in Ch. 8. Operating Cash Flow SENSITIVITY ANALYSIS [ Price - Variable cost × Number of units - Fixed cost ] × ( 1 í tax rate ) + Depreciation × tax rate 5 SENSITIVITY ANALYSIS Let's see how a sensitivity analysis can be done in the sample Excel spreadsheet . • I will also show you how you can use the " Data Table " function in Excel. • The "Data Table" function can be accessed through the "What-If Analysis" group on the "Data" tab (MS Excel 2019).
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