From the course: Evaluating Business Investment Decisions
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Scenario analysis
From the course: Evaluating Business Investment Decisions
Scenario analysis
- Say you've prepared a business investment analysis for a proposed project called Invention, which using new AI technology is expected to save a business called ABC Enviro from going under. The investment decision meeting with the board is next week. And so you've decided to brief the CEO separately ahead of the meeting. Now picture this, you're sitting down in her office and stepping through the key metrics of investing in this new AI technology. Specifically you advise her that invention is expected based on all your hard work today to deliver the following, an NPV of $3.97 million, a benefit to cost ratio of 3.02, and lastly, an ROI of 202%. You then go on to explain some of the key assumptions that you used. A discount rate of 7.9% and also a revenue increase of 22% per annum. Now, at this point, the CEO is likely to ask, what if we change our assumption of benefits? Or, what if we change the discount rate?…
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