Sensitivity Analysis and Investment Decision Making Under Uncertainty Based on NPV Method

DOI

10.2991/aebmr.k.220307.306How to use a DOI?

Keywords

Sensitivity Analysis; Investment Decision Making; Net Present Value Rule

Abstract

Sensitivity analysis is often used in investment decision-making to evaluate the risk under uncertainty. However, sensitivity analysis on the NPV method is seldom studied in the existing literature. This paper studied how sensitivity analysis could complement the NPV rules in investment decisions when uncertain. The study is based on a case study of an imaginary company and used the partial derivative method to conduct sensitivity analysis on NPV. The study showed that the NPV of investment projects has a different sensitivity to the discount rate change when the project cashflow distribution differs. Moreover, when there is an expected discount rate change due to exogenous factors such as interest rate, the sensitivity of NPV will also vary. The study provides a more rigorous way of examining the sensitivity compared to previous methods.

Copyright

© 2022 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Qingyang Liu
PY  - 2022
DA  - 2022/03/26
TI  - Sensitivity Analysis and Investment Decision Making Under Uncertainty Based on NPV Method
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 1861
EP  - 1865
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.306
DO  - 10.2991/aebmr.k.220307.306
ID  - Liu2022
ER  -