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Sensitivity Analysis Is a Method Which Allows for Evaluation of the NPV

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Essay

Sensitivity analysis is a method which allows for evaluation of the NPV given a series of changes to the underlying assumptions. Discuss why and how scenario analysis is used in addition to sensitivity analysis.


Definitions:

Service Revenue

Income earned by a company for the services it provides to customers, excluding revenue from the sale of goods.

Adjusting Entry

Journal entries made in accounting records at the end of an accounting period to update the accounts for accruals and deferrals.

Year-End Adjustment

Year-end adjustment consists of accounting entries made at the end of an accounting period to update balances of accounts so that financial statements can be accurately produced.

Insurance Policy

A contract between the insurer and the insured, which outlines the claims which the insurer is legally required to pay in exchange for the premium.

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