From the course: Corporate Finance: Robust Financial Modeling
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Performing scenario analysis
From the course: Corporate Finance: Robust Financial Modeling
Performing scenario analysis
- One of the best ways to define scenario analysis is to ask the question, what if? What if I change an input, or what if I change an assumption? A well-designed model will make this super easy. In fact, having the ability to seamlessly change variables should actually be a mandatory feature of your model, as I'll guarantee you that your stakeholders will ask you to run various scenarios. Did you also know that performing scenario analysis is a wonderful way of potentially finding flaws in your model? Let's take a look how. Open the Excel exercise file for this video. What you can see is a completed life cycle costing for a customer relationship management system. The headline number is a net present value or just NPV, of minus $7.10 million. But what are the variables that impact this number? And how easy are they to change? In row six, you'll notice we have a discount rate of 2.81%. This number is coming…
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