This paper discusses the sensitivity analysis of valuation equations used in investment decisions. Since financial decision are commonly supported via a point value of some criterion of economic relevance (net present value, economic value added, internal rate of return, etc.), we focus on local sensitivity analysis. In particular, we present the differential importance measure (DIM) and discuss its relation to elasticity and other local sensitivity analysis techniques in the context of discounted cash flow valuation models. We present general results of the net present value and internal rate of return sensitivity on changes in the cash flows. Specific results are obtained for a valuation model of projects under severe survival risk used in the industry sector of power generation.

Sensitivity Analysis in Investment Project Evaluation

BORGONOVO, EMANUELE;PECCATI, LORENZO
2004

Abstract

This paper discusses the sensitivity analysis of valuation equations used in investment decisions. Since financial decision are commonly supported via a point value of some criterion of economic relevance (net present value, economic value added, internal rate of return, etc.), we focus on local sensitivity analysis. In particular, we present the differential importance measure (DIM) and discuss its relation to elasticity and other local sensitivity analysis techniques in the context of discounted cash flow valuation models. We present general results of the net present value and internal rate of return sensitivity on changes in the cash flows. Specific results are obtained for a valuation model of projects under severe survival risk used in the industry sector of power generation.
2004
Borgonovo, Emanuele; Peccati, Lorenzo
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/40069
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 67
  • ???jsp.display-item.citation.isi??? 54
social impact