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i didnt understand it neither. if you have passcard better explanation there it says “SEnsitivity analysis is one of the form of “WHat – if”?analysis for exe option 2 is more expensive than option 1 and involves taking a discount of 10% from supplier from who u purchase 50000USD of goods (before disaccount) pa for 4 years. Ignore the time value of money.discount needs to be 10000USD (different)+20000USD(current discount if option 2 is as good as otion 1.
(4x50000USD)xX%=30000USD
X=15%(rate at which you are indefferent between 2 te 2 option)

A business environment can change quickly so a business should understand how sensitive its sales costs and income(variables) are to change

Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different to the key predictions (‘What If’ analysis)

Typically this involves changing the value of a variable and seeing how the results are affected.

Management often use this technique when evaluating new policies and goals it may wish to adopt, and it is particularly useful when launching a new product as risk is better understood.

It is also used to analyse an investment’s profitability to evaluate the risk involved.

It considers potential changes to interest rates, costs and/or other vaiables, and can be used to assess the range of values that will still give an investor a positive return.

The uncertainty may still be there but the effect that it has on the investor’s return will be better understood.

Simulation
One of the chief problems encountered in decision making is the uncertainty of the future.

Computer models can be built to simulate real life scenarios. The model will predict what range of returns an investor could expect from a given decision without having risked actual cash.

The model use random number tables to generate possible values for the uncertainty the business is subject to. In the business environment it can, for example, be used to examine inventory, queuing,scheduling and forecasting problems.

From the example of the supermarket in the BPP study text, the supermarket was able to generate information from the use of simulation to forecast demand over a ten day period that would allow it to minimise inventory holding without running out of the product, thereby reducing costs but avoiding the loss of sales