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How do you conduct a sensitivity analysis?
To perform sensitivity analysis, we follow these steps:
- Define the base case of the model;
- Calculate the output variable for a new input variable, leaving all other assumptions unchanged;
- Calculate the sensitivity by dividing the % change in the output variable over the % change in the input variable.
What are the applications of sensitivity analysis?
Uses of Sensitivity Analysis The key application of sensitivity analysis is to indicate the sensitivity of simulation to uncertainties in the input values of the model. Sensitivity analysis is a method for predicting the outcome of a decision if a situation turns out to be different compared to the key predictions.
How do you show sensitivity analysis?
What is the definition of a sensitivity analysis?
Sensitivity analysis is a financial model that determines how target variables are affected based on changes in other variables known as input variables. This model is also referred to as a what-if or simulation analysis. It is a way to predict the outcome of a decision given a certain range of variables.
How is the sensitivity of a variable determined?
Sensitivity analysis determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions.
How is a sensitivity analysis used in a financial model?
The sensitivity analysis is based on the variables affecting valuation, which a financial model can depict using the variables’ price and EPS. The sensitivity analysis isolates these variables and then records the range of possible outcomes.
How is sensitivity analysis used in decision making?
Sensitivity analysis is also referred to as “what-if” or simulation analysis and is a way to predict the outcome of a decision given a certain range of variables. By creating a given set of variables, an analyst can determine how changes in one variable affect the outcome.