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Corporate Financial Management | Sample Assignment

   

Added on  2019-11-19

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CORPORATEFINANCIALMANAGEMENT

Corporate financial managementIntroductionIt is the role of the management to take a vital decision in regard to the functioning of the company and it can be done with the aid of proper tools and techniques. The management has theoption to use tools such as scenario analysis, sensitivity analysis, simulation and break even that helps in driving at a conclusion. It needs to be noted that capital budgeting technique is importantas it stress upon selection of various investment proposals and the tools mentioned below are important to the organization so that the best selection can be made. The major emphasis of the task is with the tools and technique in the process of decision making..2

Corporate financial managementSensitivity Analysis method can be interpreted as the statistical method, useful in analyzing the consequential alterations from the expected assessment of the value. The capital budgeting can be analyzed by studying in the current study. Sensitivity analysis is about determining and assessing the value by which one can revamp the information input to derive the result in a linear-programming method to continue unaltered equivalently (Correia et. al, 2005). The process is helpful in justifying sensitivity in the information provided and used in calculating the much-needed levels at every input to support the authorities in the decision-making process by providing much-needed recommendations and simultaneously constructive in finally examine the intensity of information acknowledged.1. Sensitivity analysis and application in the capital budgeting process.Sensitivity analysis concept assists in identifying the aspects of divergent values of independent variables upon the dependent variables under various conditions. Apart from that, capital budgeting method is a process to figure out a project to decide on to the project to be carried out or leave. While analyzing an individual project, only financial aspect is considered by the management of a company in the capital budgeting process, whereas in case of sensitivity analysis method both financial and non-financial aspects are simultaneously taken into consideration by the management of the organization (Kan & Zhang, 1999). That is why management of an organization prefers sensitivity analysis concept over capital budgeting system while evaluating the financial strength of a project under consideration (Brigham & Ehrhardt, 2011). It can be said that management of the company determines and get the sense of the success chances of a project by examining the project through sensitivity analysis system.3

Corporate financial managementSensitivity analysis concept can be defined as a process in identifying and budgeting the cash inflow and outflow of the project by taking into consideration some fundamental factors such as current economic situation, the rate of inflation and interest rate scenario. Sensitivity analysis canbe better defined with the help of IRR and NPV system (Kandel & Stambaugh, 1995). For example, if the management of a company distinguish that net present value (NPV) of a particular project is in negative, then the chances of failure of the project is much high, that indicates that company’s management should not invest into the project, but when the management of the organization examine a project and find that the IRR is 12%, whereas the cost of capital is 6% only, it implies that IRR is much higher than the cost of capital. Therefore, there is much more chances or probability that the project under consideration will be suitable and will be profitable for the company because of a higher rate of return that company can realize by investing into the project to improve the financial aspects of the company and investors. 4

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