Why Should a Decision Maker Engage in Sensitivity Analysis

question 20

Essay

Why should a decision maker engage in sensitivity analysis?

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Definitions:

Preferred Stock

A type of ownership in a corporation that has a higher claim on its assets and earnings than common stock, typically with dividends that must be paid out before dividends to common stockholders.

Rate Of Return

A measure of the profit or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Constant Growth

A model assuming a company's dividends will continue to grow at a consistent rate indefinitely.

Dividend

A portion of a company's earnings that is paid to shareholders, usually on a regular basis.